Why Do Imports Fall More than Exports Especially During Crises? Evidence from Selected Asian Economies

This question is examined via a standard import specification augmented with differential and time-varying impacts of each component of aggregate demand: consumption, investment, government spending, and exports. Several important variables in explaining import demand such as credit conditions and business and consumer sentiment are also included. A panel fixed-effects model adjusted for cross-sectional dependence is estimated for 11 Asian economies from 1Q91 to 2Q11. The result shows the import intensity of exports is the highest among all variables. Alone, however, it does not contribute to a larger fall in imports. The larger decline in imports will be evident if other components of aggregate demand also fall, particularly investment and consumption. A weakened credit condition will also exacerbate the fall in imports. Business and consumer sentiment, however, does not seem to matter. In crisis periods more nuanced results are evident. For example, fiscal contractions may have worsened the fall in imports during the 1997/98 Asian financial crisis, while the fall in exports also has an additional adverse impact. Business and consumer sentiment seems to have a lagged positive impact during the global financial crisis.