Disaggregated Import Demand Function: A Case Study of Pakistan

This study investigates the income and price elasticities of disaggregated import demand function in case of Pakistan. This paper applies the ARDL bound testing approach to co-integration over the time span of 1972-2009. Our empirical findings show that there exists a long run relationship among the variables. The impact on real GDP on import demand of food items is positive. The impact on real GDP on import demand of raw material is positive. The effect of real GDP on import demand of fuel lightening and the lubricants items group is positive. The impact of relative price on import demand of fuel lightening and the lubricants items group is negative. The effect of real GDP on import demand of manufactured items group is positive, but the impact of relative price is negative. Fuel lightening and lubricants items and manufactured items are highly price elastic, while food items and raw material items are price inelastic. The overall results of all the four models indicate that fuel lightening and lubricants items group is more income elastic as compared to the other commodity groups, and the manufactured items group is more price elastic as compared to the other commodity groups. This study also confirms that import demand of all the commodity groups is highly sensitive to changes in real GDP. The government should try to invest in high-tech industry so that in long run imported goods demand may be controlled.