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Imports under a foreign exchange constraint

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  • Moran, Cristian
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    Abstract

    The traditional model of import behavior -- which looks only at the gross domestic product (GDP) and real import prices as explanatory variables -- failed to predict or explain the developing countries'import slumps in the early 1980's. This paper expands on a more useful model, the Hemphill, which incorporates the traditional variables (relative prices and domestic income) with the variables introduced by Hemphill (foreign exchange receipts and international reserves). Section 2 of this paper discusses the theoretical models in the present study. The traditional model, used here as a benchmark, is presented first, and is later extended to include foreign exchange constraints. Section 3 presents the empirical estimates of the general import models that include foreign constraints, and two special cases, the Hemphill and benchmark models, using pooled, cross-section time series. Section 4 concludes that policy makers must look at the policies that affect GDP and prices and the availability of foreign exchange when trying to estimate import behavior in developing countries.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1.

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    Date of creation: 31 Mar 1988
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    Handle: RePEc:wbk:wbrwps:1

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    Keywords: Economic Theory&Research; Environmental Economics&Policies; Economic Stabilization; Inequality; Geographical Information Systems;

    References

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    1. Goldstein, Morris & Khan, Mohsin S., 1985. "Income and price effects in foreign trade," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 20, pages 1041-1105 Elsevier.
    2. Dornbusch, Rudiger, 1983. "Real Interest Rates, Home Goods, and Optimal External Borrowing," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 141-53, February.
    3. Thursby, Jerry G & Thursby, Marie C, 1984. "How Reliable Are Simple, Single Equation Specifications of Import Demand?," The Review of Economics and Statistics, MIT Press, vol. 66(1), pages 120-28, February.
    4. Sundararajan, V., 1986. "Exchange rate versus credit policy : Analysis with a monetary model of trade and inflation in India," Journal of Development Economics, Elsevier, vol. 20(1), pages 75-105.
    5. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
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    Cited by:
    1. Rashid, Abdul & Razzaq, Tayyaba, 2010. "Estimating Import-Demand Function in ARDL Framework: The Case of Pakistan," MPRA Paper 26079, University Library of Munich, Germany.
    2. Rashid, Abdul & Razzaq, Tayyaba, 2010. "Estimating Import-Demand Function in ARDL Framework: The Case of Pakistan," MPRA Paper 23702, University Library of Munich, Germany.

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