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Determination of Import Demand in Pakistan: The Role of Expenditure Components

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  • Muhammad Irfan CHANI

    (National College of Business Administration and Economics, Lahore, Pakistan)

  • Zahid PERVAIZ

    (National College of Business Administration and Economics, Lahore, Pakistan)

  • Amatul R. CHAUDHARY

    (National College of Business Administration and Economics, Lahore, Pakistan)

Abstract

The paper uses imperfect substitution approach to derive the aggregate import demand function on the basis of disaggregated expenditure components. This derived import demand function is then empirically tested for Pakistan by using co-integration and error correction mechanism. The empirical results show that elasticity of import demand with respect to different macro components of final expenditure is different. The import demand in Pakistan is affected positively and significantly by all expenditure components. The relative prices have negative but insignificant relationship with import demand in Pakistan. The findings indicate that use of aggregate expenditure variable in the aggregate import demand function leads to aggregation bias because different macro components of final expenditure have different import contents. The model derived in this study provides indepth guidelines for macroeconomic policy decisions in order to overcome the problem of persistent trade deficit in the country.

Suggested Citation

  • Muhammad Irfan CHANI & Zahid PERVAIZ & Amatul R. CHAUDHARY, 2011. "Determination of Import Demand in Pakistan: The Role of Expenditure Components," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(8(561)), pages 93-110, August.
  • Handle: RePEc:agr:journl:v:8(561):y:2011:i:8(561):p:93-110
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    3. Chani, Muhammad Irfan & Pervaiz, Zahid & Jan, Sajjad Ahmad & Ali, Amjad & Chaudhary, Amatul R., 2011. "Poverty, inflation and economic growth: empirical evidence from Pakistan," MPRA Paper 34290, University Library of Munich, Germany, revised 2011.

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