Abstract
Given the importance of international trade in the economic performance of a country, voluminous research work has been carried out on the determinants of aggregate exports and imports. The present study departs from the conventional approach by analyzing demand of imports in a commodity-wise disaggregated fashion. As different products respond differently to trade policies and exchange rates, therefore policy makers can focus on the particular products when designing their policies for imports. Specifically, this study attempts to analyze the impact of prices, income level, foreign exchange reserves, exchange rate and trade liberalization program on 26 commodities defined by SITC 3-digit classification in which Pakistan has been most often a net importer. Using data for the period 1982 to 2010, GMM estimates reveal inelastic response of the major commodities to their own prices and are growth driven.
Highlights
International trade is recognized as an engine of economic growth
Keeping in view a heavy dependence of Pakistan’s economy on imports of different commodities, the current study explores the responsiveness of different commodities to different policy variables
Estimates of the import demand functions for 26 commodities show that almost all the products are normal goods
Summary
International trade is recognized as an engine of economic growth. It enhances the welfare of consumers by enabling them to have high quality of goods. The same policy will be fruitless for commodities having low price elasticities. We estimate import demand function for 26 commodities over the period of 1982-2010. These includes Tea, Natural Rubber, Jute, Synthetic Fiber, Crude fertilizer, Iron Ore and Concentrates, Coal, Crude oil and Petroleum Products, Vegetable Oil, Inorganic Chemicals, Synthetic Dyes, Paints/ Varnishes, Pharm Products, Pesticides, Rubber Articles, Paper & Board, Mineral Manufactures, Pig Iron, Iron Bars and Sheets, Iron Plate, Copper, Aluminum, Office Machines, TV Receivers and Passenger Vehicles. More than half of the commodities are inelastic in nature showing that they are essential in nature
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