Explaining Investment and Intermediate Goods Imports and Estimating Elasticities in Turkey

Turkey has been highly dependable on foreign production goods for Its domestic production since 1980. This necessitates estimation of income, relative import price, exchange rate and term of trade elasticities of investment and intermediate goods import demand to manage trade deficit. Assuming theoretical causalities, this study shows that investment and intermediate goods imports can be explained by gross national product, relative import price, foreign exchange rate, terms of trade, relative import price adjusted and foreign terms of trade adjusted real foreign exchange rate for the period of 1982-2004. The income, relative import price and foreign exchange rate elasticities of investment good import are found less elastic than the related elasticities of intermediate good import. Investment and intermediate good imports increase as export increases. The positively estimated import price relative to domestic wholesale price effect implies the Veblen effect on the real import and complementary goods relationship between domestic and imported production goods.