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A cointegration analysis of Malaysian import demand function: reassessment from the bounds test

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  • Tuck Cheong Tang
  • Mahendhiran Nair

Abstract

This paper presents an empirical analysis of the aggregated import demand behaviour for Malaysia. The study involved a small sample of annual data from 1970 to 1998. To estimate the long-term relationship between import demand, and its determinants, namely income and relative prices, a robust estimation method known as the Unrestricted Error Correction Model - Bounds Test Analysis was used. The results show that import volume, income and relative prices are cointegrated. The estimated long-run elasticites of import demand with respect to income and relative prices are 1.5 and -1.3 respectively. This implies that monetary, fiscal and exchange rate policies can be used as instruments to maintain favourable trade balance.

Suggested Citation

  • Tuck Cheong Tang & Mahendhiran Nair, 2002. "A cointegration analysis of Malaysian import demand function: reassessment from the bounds test," Applied Economics Letters, Taylor & Francis Journals, vol. 9(5), pages 293-296.
  • Handle: RePEc:taf:apeclt:v:9:y:2002:i:5:p:293-296
    DOI: 10.1080/13504850110073471
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