Research Discussion Paper – RDP 04 A Demand Equation for Imports

Introduction

This paper presents estimates of a demand equation for imports of goods and services into Australia. Quarterly seasonally unadjusted deflated data for the period 1962(1) to 1968(3) is used.

There is a sizable body of empirical literature for other countries on the demand for imports. Some studies estimate a demand equation for total imports whereas others estimate demand equations for several categories of imports. The papers by Ball and Marwah [1] and Black, Kidgell and Ray [2], for the United States and United Kingdom respectively, estimate both aggregate and disaggregated equations and find that forecasts of total imports yielded by an aggregate equation are not noticeably inferior to those produced by the disaggregated equation. The present authors found similar results for Australia after disaggregating total imports into imports of goods and imports of services and then further disaggregating (recorded) imports of goods by economic class. Only estimates of the aggregate equation are given in this paper.

The plan of the study is as follows. The static theory underlying the estimated equations is given in section 2 and some comments on the adjustment process are made in section 3. The estimates are presented in section 4. Finally, some implications of the preferred equation are noted in section 5.