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Imports under a foreign exchange constraint

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  • Moran, Cristian

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.

Suggested Citation

  • Moran, Cristian, 1988. "Imports under a foreign exchange constraint," Policy Research Working Paper Series 1, The World Bank.
    • Handle: RePEc:wbk:wbrwps:1
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    References listed on IDEAS

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    1. Morris Goldstein & Mohsin S. Khan, 2017. "Income and Price Effects in Foreign Trade," World Scientific Book Chapters, in: TRADE CURRENCIES AND FINANCE, chapter 1, pages 3-81, World Scientific Publishing Co. Pte. Ltd..
    2. 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.
    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 120-128, February.
    4. Dornbusch, Rudiger, 1983. "Real Interest Rates, Home Goods, and Optimal External Borrowing," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 141-153, February.
    5. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
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    Cited by:

    1. Abdul Rashid & Tayyaba Razzaq, 2010. "Estimating Import-Demand Function in ARDL Framework," EERI Research Paper Series EERI_RP_2010_15, Economics and Econometrics Research Institute (EERI), Brussels.
    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. Rashid, Abdul & Razzaq, Tayyaba, 2010. "Estimating Import-Demand Function in ARDL Framework: The Case of Pakistan," MPRA Paper 23702, University Library of Munich, Germany.
    4. Rashid, Abdul & Razzaq, Tayyaba, 2010. "Estimating Import-Demand Function in ARDL Framework: The Case of Pakistan," MPRA Paper 26079, University Library of Munich, Germany.

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