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Estimating Import-Demand Function in ARDL Framework: The Case of Pakistan

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  • Rashid, Abdul
  • Razzaq, Tayyaba

Abstract

We estimate the import demand function for Pakistan using the structural model recently developed by Emran and Shilpi (2010). 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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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 26079.

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Date of creation: 10 May 2010
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Handle: RePEc:pra:mprapa:26079

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

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  1. Robert A. Amano & Wai-Ming Ho & Tony S. Wirjanto, 1999. "Intraperiod and Intertemporal Substitution in Import Demand," Cahiers de recherche CREFE / CREFE Working Papers, CREFE, Université du Québec à Montréal 84, CREFE, Université du Québec à Montréal.
  2. Augustine Arize & John Malindretos & Elias Grivoyannis, 2004. "Foreign exchange reserves and import demand in a developing economy: the case of Pakistan," International Economic Journal, Taylor & Francis Journals, Taylor & Francis Journals, vol. 18(2), pages 259-274.
  3. Johansen, S., 1991. "A Statistical Analsysis of Cointegration for I(2) Variables," Papers, Helsinki - Department of Economics 77, Helsinki - Department of Economics.
  4. Narayan, Paresh Kumar & Narayan, Seema, 2005. "Estimating income and price elasticities of imports for Fiji in a cointegration framework," Economic Modelling, Elsevier, Elsevier, vol. 22(3), pages 423-438, May.
  5. Reinhart, Carmen, 1995. "Devaluation, Relative Prices, and International Trade: Evidence from Developing Countries," MPRA Paper 6974, University Library of Munich, Germany.
  6. Hélène Erkel-Rousse & Daniel Mirza, 2002. "Import price elasticities: reconsidering the evidence," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 35(2), pages 282-306, May.
  7. Moran, Cristian, 1988. "Imports under a foreign exchange constraint," Policy Research Working Paper Series 1, The World Bank.
  8. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, Econometric Society, vol. 59(6), pages 1551-80, November.
  9. Caporale, Guglielmo Maria & Chui, Michael K F, 1999. "Estimating Income and Price Elasticities of Trade in a Cointegration Framework," Review of International Economics, Wiley Blackwell, vol. 7(2), pages 254-64, May.
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