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Volume :27 Issue : 100 2001      Add To Cart                                                                    Download

DEMAND FOR IMPORTS IN THE GCC COUNTRIES

Auther : Dr. Yousuf Hasan Jawad Mohammad, and Dr. Mohammed Ibrahim Taha El-Sakka

 

Investigating the import demand function has been one of the most active research areas in international economics.  The reason for this popularity is its applications to a wide range of important macroeconomic policy issues.  These include the international transmission of domestic disturbances, the impact of expenditure switching through exchange rate management and commercial policy on a country’s trade balance and the degree to which the external balance affects the economy’s growth.   Moreover, knowledge of import demand function is highly useful in understanding the fluctuations of imports over the course of a business cycle and in the choice of economic policy options aimed at managing imports and balance of payments issues.  Finally, the estimated demand elasticities are of vital importance when it comes to evaluating the effect of price changes in a partial equilibrium framework.

 

This empirical study investigates the process of adjustment of imports to changes in the level of domestic economic activity (income) and the relative prices in the Gulf Cooperation Council (GCC) Countries.  The aim is to provide new estimates of the aggregate demand for imports in these countries over the last two decades, applying standard econometric techniques complemented by appropriate diagnostic tests based on recent and by now widely used dynamic modeling and cointegration techniques.  In addition, estimates of short run and long run income and price elasticities for the individual countries within the GCC are obtained.

 

The results indicate that the demand for imports in the majority of the GCC Countries is inelastic with respect to income and relative price level in the short run.  However, in the long run, the income elasticity becomes greater than one while the relative price elasticity remains less than one.  Thus, indicating that imports are generally considered a necessity.

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