Measuring Price and Income Elasticity of Demand Function of the Iranian Imports

Abstract

Investigating the import demand function has particular importance in identifying the macroeconomic models and effectiveness and commercial efficiencies of the Iranian economy. For this reason, one of the major issues that can be addressed in the field of importing goods is the estimation of import demand function and investigating impacting factors on imports. Therefore, in this paper, throughout using seasonal data for the period 1992-2017 and applying the almost ideal demand system (AIDS) and using seemingly unrelated regression (SUR) econometric technique, we have estimated import price and income elasticities for five commodity groups based on one-digit tariffs code for the Iranian economy. The empirical results indicated that the import allocation pattern is single-stage and depends on the domestic sales. Also, the own-price elasticities had a negative sign which supports import behavior. Cross-price elasticities also showed a poor complementarity between the Other portable and metal commodities and, Social & personal services and Financial & business Services, domestic sales with Agricultural, forestry & fishing products, Other portable & metal commodities and Financial & business Services groups. The expenditure elasticities in five commodity groups were significant, except the first group, which implying effectiveness of demand for each commodity groups relative to income.