Aggregate Import Demand Function for Pakistan: Analysis in the Form of Old and Relatively New Cointegration Techniques

The present study estimates an aggregate import demand function for the Pakistan economy during the period 1971- 2007. In this empirical analysis, previous and relatively new robust cointegration techniques like Engle Granger (1987), Johansen and Juselius (1990), and the autoregressive distributed lag (ARDL) framework by Pesaran and Shin (1996, 1998) were employed to analyze long-run relationship and the ARDL based error correction modelling approach was used for the Short run dynamics. The results show that cointegration relationship exists between real quantities of imports, relative prices, and real GNP (gross national product). The long run income elasticity is greater than one (1.36) and positive; the income elasticity in the short run is though positive but less than one (0.59). The price elasticity in the long run (-0.54) and short run (-0.56) are both negative and less than one.