IDEAS home Printed from https://ideas.repec.org/a/taf/intecj/v18y2004i2p259-274.html
   My bibliography  Save this article

Foreign exchange reserves and import demand in a developing economy: the case of Pakistan

Author

Listed:
  • Augustine Arize
  • John Malindretos
  • Elias Grivoyannis

Abstract

Conventional specifications of import demand in LDCs have commonly been plagued by implausible and unstable parameter estimates. This paper shows the importance of imposing long-run income homogeneity and of including foreign exchange reserves when estimating import demand function for an LDC. Using several cointegration techniques, it is shown that there is one linear relationship among real imports, real income, relative import prices and real foreign exchange reserves. In addition, by employing stability tests for cointegrated systems by Hansen (1992a), the paper shows that only when foreign exchange reserves and long-run unit-income homogeneity are accounted for does a constant parameter, long-run equilibrium relation emerge for Pakistan. Also, the ensuing short-run dynamic model is constant and data-coherent. Finally, the study provides information on the speed of adjustment to equilibrium and the median and mean time lags of adjustments of real imports to changes in their determinants. The results indicate a quick response of real imports to changes in their determinants.

Suggested Citation

  • 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, vol. 18(2), pages 259-274.
    • Handle: RePEc:taf:intecj:v:18:y:2004:i:2:p:259-274
    DOI: 10.1080/1016873042000228376
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/1016873042000228376
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/1016873042000228376?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Gregory C. Reinsel & Sung K. Ahn, 1992. "Vector Autoregressive Models With Unit Roots And Reduced Rank Structure:Estimation. Likelihood Ratio Test, And Forecasting," Journal of Time Series Analysis, Wiley Blackwell, vol. 13(4), pages 353-375, July.
    2. Khan, Mohsin S & Knight, Malcolm D, 1988. "Import Compression and Export Performance in Developing Countries," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 315-321, May.
    3. Faini, Riccardo & Pritchett, Lant & Clavijo, Fernando, 1988. "Import demand in developing countries," Policy Research Working Paper Series 122, The World Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Morlai Bangura & Oluwakemi Ademisola & Olufemi Saibu, 2023. "Estimating Sierra Leone’s Aggregate Import Demand Function Under Binding Foreign Exchange," Applied Economics and Finance, Redfame publishing, vol. 10(1), pages 113127-1131, February.
    2. Abdul Rashid & Tayyaba Razzaq, 2013. "An Estimation of Structural Import Demand Function for Pakistan," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 156-175.
    3. Zunia Saif Tirmazee & Resham Naveed, 2014. "Reviewing Pakistan’s Import Demand Function: A Time-Series Analysis, 1970–2010," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 19(Special E), pages 371-393, September.
    4. Rashid, Abdul & Razzaq, Tayyaba, 2010. "Estimating Import-Demand Function in ARDL Framework: The Case of Pakistan," MPRA Paper 23702, University Library of Munich, Germany.
    5. Rashid, Abdul & Razzaq, Tayyaba, 2010. "Estimating Import-Demand Function in ARDL Framework: The Case of Pakistan," MPRA Paper 26079, University Library of Munich, Germany.
    6. Adewuyi, Adeolu & Ogebe, Joseph O. & Oshota, Sebil, 2021. "The role of exchange rate and relative import price on sawnwood import demand in Africa: Evidence from modified heterogeneous panel data methods," The Journal of Economic Asymmetries, Elsevier, vol. 24(C).
    7. Ubong Edem Effiong, 2022. "Foreign Exchange Reserves and Import Demand in a Developing Economy: New Evidence from Nigeria," International Journal of Business Management and Finance Research, Academia Publishing Group, vol. 5(2), pages 85-99.
    8. Khyati Kathuria & Nand Kumar, 2022. "Are exports and imports of India’s trading partners cointegrated? Evidence from Fourier bootstrap ARDL procedure," Empirical Economics, Springer, vol. 62(3), pages 1177-1191, March.
    9. Bibhuti Ranjan Mishra & Asit Mohanty, 2017. "An Empirical Analysis of Aggregate Import Demand Function for India," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 17(4), pages 1-12, December.
    10. Arize, Augustine C. & Nippani, Srinivas, 2010. "Import demand behavior in Africa: Some new evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(3), pages 254-263, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Angelos A. Antzoulatos & Simone Peart, 1998. "Import demand under a foreign exchange constraint," Research Paper 9810, Federal Reserve Bank of New York.
    2. Alexis Habiyaremye, 2008. "Economic Proximity and Technology Flows: South Africa's Influence and the Role of Technological Interaction in Botswana's Diversification Effort," WIDER Working Paper Series RP2008-92, World Institute for Development Economic Research (UNU-WIDER).
    3. Zhang, Yin & Wan, Guanghua, 2007. "What accounts for China's trade balance dynamics?," Journal of Policy Modeling, Elsevier, vol. 29(6), pages 821-837.
    4. Sylvia Kaufmann & Peter Kugler, 2008. "Does Money Matter For Inflation In The Euro Area?," Contemporary Economic Policy, Western Economic Association International, vol. 26(4), pages 590-606, October.
    5. Tang, Chor Foon & Tan, Eu Chye, 2015. "Does tourism effectively stimulate Malaysia's economic growth?," Tourism Management, Elsevier, vol. 46(C), pages 158-163.
    6. Bhavesh Garg & Pravakar Sahoo, 2021. "DO DIFFERENT TYPES OF CAPITAL INFLOWS HAVE DIFFERENTIAL IMPACT ON OUTPUT? Evidence from Time series and Panel Analysis," IEG Working Papers 443, Institute of Economic Growth.
    7. Mansor Ibrahim, 2006. "Integration or Segmentation of the Malaysian Equity Market: An Analysis of Pre- and Post-Capital Controls," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 11(4), pages 424-443.
    8. Arize, Augustine C., 2002. "Imports and exports in 50 countries: Tests of cointegration and structural breaks," International Review of Economics & Finance, Elsevier, vol. 11(1), pages 101-115, April.
    9. Dierk Herzer & Stephan Klasen & Felicitas Nowak-Lehmann D., 2006. "In search of FDI-led growth in developing countries," Ibero America Institute for Econ. Research (IAI) Discussion Papers 150, Ibero-America Institute for Economic Research.
    10. Frauke Dobnik, 2013. "Long-run money demand in OECD countries: what role do common factors play?," Empirical Economics, Springer, vol. 45(1), pages 89-113, August.
    11. Vincent Bouvatier, 2007. "Are International Interest Rate Differentials Driven by the Risk Premium? The Case of Asian Countries," Economics Bulletin, AccessEcon, vol. 5(6), pages 1-14.
    12. Dierk Herzer & Sebastian Vollmer, 2012. "Inequality and growth: evidence from panel cointegration," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 10(4), pages 489-503, December.
    13. Christian Dreger & Dierk Herzer, 2013. "A further examination of the export-led growth hypothesis," Empirical Economics, Springer, vol. 45(1), pages 39-60, August.
    14. repec:ebl:ecbull:v:5:y:2007:i:6:p:1-14 is not listed on IDEAS
    15. Panagiotis T. Konstantinou, 2005. "The Expectations Hypothesis of the Term Structure : A Look at the Polish Interbank Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 41(3), pages 70-91, May.
    16. Frauke Dobnik, 2011. "OLong-run Money Demand in OECD Countries – Cross-Member Cointegration," Ruhr Economic Papers 0237, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    17. Kalaitzi Athanasia Stylianou & Kherfi Samer & Alrousan Sahel & Katsaiti Marina-Selini, 2022. "Are Non-Primary Exports the Source for Further Economic Growth in the UAE?," Review of Middle East Economics and Finance, De Gruyter, vol. 18(1), pages 29-51, April.
    18. Mansor H. Ibrahim, 2006. "Stock Prices and Bank Loan Dynamics in a Developing Country: The Case of Malaysia," Journal of Applied Economics, Taylor & Francis Journals, vol. 9(1), pages 71-89, May.
    19. Marcus J. Chambers, 2015. "A Jackknife Correction to a Test for Cointegration Rank," Econometrics, MDPI, vol. 3(2), pages 1-21, May.
    20. Dierk Herzer & Holger Strulik & Sebastian Vollmer, 2012. "The long-run determinants of fertility: one century of demographic change 1900–1999," Journal of Economic Growth, Springer, vol. 17(4), pages 357-385, December.
    21. Riadh Ben Jelili, 1995. "Investissement et rationnement sur le marché tunisien des importations de biens d'équipement," Économie et Prévision, Programme National Persée, vol. 119(3), pages 43-58.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:intecj:v:18:y:2004:i:2:p:259-274. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RIEJ20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.