Impact of trade liberalization on import demands in India: a panel data analysis for commodity groups

Abstract

The objectives of this study are to examine the impact of liberalization on price elasticities of imports at a commodity level for broad commodity groups and at an aggregate level for the Indian economy over the period 1993–1997. Liberalization is implemented by reducing tariff and non-tariff barriers and relaxing exchange controls. The impact of tariffs and market based exchange rate is introduced in the import price of the commodity. Relative price (import/domestic) elasticities for each commodity group using panel data of six countries over five years are estimated. For the Indian economy, relative price elasticities for each of the years at an aggregate level using data for twenty commodity groups as observations are obtained and these show that the price elasticity tends to rise with the increase in liberalization when tariff rates are reduced.