How Reliable are Simple, Single Equation Specifications of Import Demand?

Abstract

This paper examines nine models of aggregate import demand for each of five countries (Canada, Germany, Japan, United Kingdom, and United States) in an attempt to determine which of the frequently used single equation models of import demand are appropriate. An appropriate model is defined as one which generates unbiased (or at least consistent) and efficient elasticity estimates. While models without lagged adjustments and Almon lag models perform rather poorly according to these criteria, models including dynamic behavior through lagged values of the dependent variable are frequently accepted. Results are reported regarding functional form, measures of variables, and structural shift. ECONOMISTS have devoted considerable attention to the estimation of aggregate import demand elasticities because of their importance in trade theory. The simplest procedure for estimating these elasticities which is consistent with economic theory is to assume that the elasticity of supply of imports is infinitely elastic and to estimate'

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