Import Demand Income Elasticity and Growth Rate in Pakistan

Abstract

This article applies the import demand function and constrained growth model in case of Pakistan and investigates for the impact of trade liberalization using data for the period of 1981-2010. The autoregressive distributed lag method and rolling regression analysis are employed to estimate import demand income elasticity. In results, the imports are found to be highly sensitive to the changes in income level. In addition, a trend of gradual increase in income elasticity of imports has been found since the aftermath of trade liberalization. However, no evidence has been found that indicates that the growth rate is increased as a consequence of liberalization. The liberalization has not increased export growth in association with the rising growth in import demand income elasticity. Thus, it is concluded that liberalization has increased the external constraint over economic growth. JEL: F13, F14, F43, O53

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