Long-run aggregate import demand function in Taiwan: an ARDL bounds testing approach

Abstract

This article adopts the bounds test, developed by Pesaran et al. (2001 Pesaran, M. H., Shin, Y. and Smith, R. J. 2001. Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16: 289–326. [Crossref], [Web of Science ®] , [Google Scholar]), to determine whether there is a level long-run relationship exists between Taiwan's real import demand function and it determinants, namely real domestic income and relative prices. It is found that aggregate import quantities and their determinants do indeed exhibit a level long-run relationship. In addition, the empirical results show that estimated short-run elasticity and long-run income elasticity are both elastic but that short-run income elasticity is considerably greater than that of its long-run counterpart. This indicates that economic growth should have a relatively greater negative impact on trade balance in the short-run than in the long-run.

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