Demand for Imports in the GCC Countries

This empirical study investigates the process of adjustment of imports to changes in the level of domestic economic activity (income) and the relative prices in the Gulf Cooperation Council (GCC) Countries. The aim is to provide new estimates of the aggregate demand for imports in these countries over the last two decades, applying standard econometric techniques complemented by appropriate diagnostic tests based on recent and by now widely used dynamic modeling and cointegration techniques. In addition, estimates of short run and long run income and price elasticities for the individual countries within the GCC are obtained. The results indicate that the demand for imports in the majority of the GCC countries is inelastic with respect to income and relative price level in the short-run. However, in the long run, the income elasticity becomes greater than one while the relative price elasticity remains less than one, thus indicating that imports are generally considered a necessity.