AGGREGATE IMPORT DEMAND BEHAVIOR FOR INDONESIA: EVIDENCE FROM THE BOUNDS TESTING APPROACH

This paper empirically re-estimates the long-run relationship between Indonesian aggregate import demand and its determinants; namely, real income and relative import prices. In contrast to previous studies (Reinhart, 1995; and Senhadji, 1998), the result of the bounds test (Pesaran et al., 2001) reveals that import volume, real income and relative import prices are cointegrated. This is an important finding from the viewpoint of the Indonesian economic policy. The estimated long-run elasticity of real income and relative price are 0.98 and –0.4 respectively.