An Estimation of Disaggregate Import DEMAND Function for Pakistan

Abstract: Import is an actually most important variable of an open economy. It would be meaningful to explore the determinants causes change in import demand. The present study purpose is an estimation of disaggregate import demand function. The Engle-Granger and Bound tests were conducted to investigate the consistency of long run parameters between import demand and it’s determinants for Pakistan during the period of 1981 to 2009. Prior the testing for co-integration, ADF and PP tests has confirmed that all of the variables are I (1). The result from co-integration shows the presence of long run relationship in import demand and its determinants regardless of estimation methods. The estimated long run elasticities of import demand with respect to consumption expenditure, investment expenditure, export expenditure and relative prices are range over (0.40, 0.38), (0.57, 0.77), (-0.17,-0.26) and (-0.53,-0.59) using Bound and EG procedures respectively. The results are first, distributed consistently across the two different long run tests conducted. Second, the effects of expenditure components are different on aggregate import demand, whereas highly sensitive to investment expenditure followed by consumption and then by expenditure on export in the long run. Key words: Pakistan Import Demand Time Series Bound Test Elasticities INTRODUCTION of relative price was not sensitive, however the investment and expenditure components of national