The differential impact of world prices and exchange rates on food imports: an econometric analysis for Peru

Abstract

This article suggests that there is a differential response of food imports in developing countries to world price changes and to changes in the exchange rate. The theoretical rationale for this assumption is presented, and it is argued that a world-price cariable and an exchange-rate variable should be introduced separately in import demand functions. In an econometric analysis for Peruvian grain imports in the period 1969–84, it is shown that imports reacted significantly more strongly to exchange rate changes than to world price changes. This finding has important implicaions for policy and for future research.