Modelling Import Demand Function for a Developing Country: An Empirical Approach

Abstract

The study focuses on the empirical modelling of aggregate import demand function for developing countries. Both traditionally suggested in existing literature as well as some additional but empirically plausible determinants of import demand are examined in the paper. Various cointegration techniques and the error correction mechanism are employed. In addition to the real income and the relative prices of imports, foreign exchange reserves are also found to be a signifcant determinant of import demand for developing countries, Export demand, which is overlooked by the existing literature, is found to be significant determinant in both the short-run and long-run for developing countries, especially the countries which imports 'capital goods'for their exporting industries.

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