Disaggregated Imports Demand Functions: An Empirical Analysis for Pakistan

Given the importance of international trade in the economic performance of a country, voluminous research work has been carried out on the determinants of aggregate exports and imports. The present study departs from the conventional approach by analyzing demand of imports in a commodity-wise disaggregated fashion. As different products respond differently to trade policies and exchange rates, therefore policy makers can focus on the particular products when designing their policies for imports. Specifically, this study attempts to analyze the impact of prices, income level, foreign exchange reserves, exchange rate and trade liberalization program on 26 commodities defined by SITC 3-digit classification in which Pakistan has been most often a net importer. Using data for the period 1982 to 2010, GMM estimates reveal inelastic response of the major commodities to their own prices and are growth driven.