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Estimating Import-Demand Function in ARDL Framework

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  • Abdul Rashid
  • Tayyaba Razzaq

Abstract

We develop a structural econometric model of import demand for Pakistan, with binding foreign exchange constraint. ARDL and DOLS techniques are used to estimate the log-run coefficients of price and income elasticities. The empirical results from ARDL bound testing approach and Johansen’s method for cointegration show strong evidence of the existence of a long-run stable relationship among the variables included in the import demand model. The price and income elasticity estimates have correct signs and are statistically significant. The coefficient of scarcity premium, as it appeared statistically significant with correct sign, confirms the presence of a binding foreign exchange constraint on aggregate import demand, particularly before the period of trade liberalization.

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Bibliographic Info

Paper provided by Economics and Econometrics Research Institute (EERI), Brussels in its series EERI Research Paper Series with number EERI_RP_2010_15.

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Date of creation: 15 Aug 2010
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Handle: RePEc:eei:rpaper:eeri_rp_2010_15

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Keywords: Import Demand; Foreign Exchange Constraint; ARDL; DOLS; Pakistan.;

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  1. Hélène Erkel-Rousse & Daniel Mirza, 2002. "Import price elasticities: reconsidering the evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 35(2), pages 282-306, May.
  2. Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107.
  3. Narayan, Paresh Kumar & Narayan, Seema, 2005. "Estimating income and price elasticities of imports for Fiji in a cointegration framework," Economic Modelling, Elsevier, vol. 22(3), pages 423-438, May.
  4. Johansen, S., 1991. "A Statistical Analsysis of Cointegration for I(2) Variables," Papers 77, Helsinki - Department of Economics.
  5. Robert A. Amano & Wai-Ming Ho & Tony S. Wirjanto, 1999. "Intraperiod and Intertemporal Substitution in Import Demand," Cahiers de recherche CREFE / CREFE Working Papers 84, CREFE, Université du Québec à Montréal.
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