Author: Premachandra Athukorala and Jayant Menon
This paper investigates the relationship between manufactured import flows to Australia, and relative prices and domestic economic activity net of cyclical demand effects over the period 1981Q3 to 1991Q2. This is done through the estimation of import demand functions for total manufactured imports and nine major import categories using the general to specific modeling approach. We find that the homotheticity assumption on activity elasticity is met in most cases. The price elasticity estimates for individual categories range from 0.32 to 2.1, with a weighted-average of 0.52. We also find some evidence of upward bias in price elasticity estimates when an aggregate import function is employed in a context where a significant portion of imports are subject to quantitative restrictions (QRs).
JEL classification: F32, F17
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