Structural Change in the Import Demand Function for Pakistan

Tayyeb Shabbir, Riaz Mahmood


The question of structural stability of the Aggregate Import
Demand Function (IOF) has important implications for modelling,
forecasting as well as policy- making related to the trade sector, in
general and imports in particular. A structural change, in quantitative
terms, may be reflected as a change in one or more parameters of the
import demand function. Analysing the possibilities, timing and the
nature of such a change is important since it affects the estimates of
the relevant elasticities. In the case of Pakistan, the issue of the
possible structural change in the IOF has not been studied much in spite
of its importance. The two notable exceptions are Sarmad (1989) and
Naqvi and Khan (1989). In Sarmad (1989) while the main purpose was to
choose between the linear and log-linear functional forms for the IOF
there is incidental treatment of structural change when he specifies a
dummy to account for the dislocation of economic activity caused by the
separation of East Pakistan in 1971. Thus he implicitly hypothesizes
that structural change occurred only in term of the intercept.1 However,
he also reports that there may have been a structural shift in 1982-83
in the import demand for manufacturing. Again, Naqvi and Khan (1989)
report a significant 1971-72 dummy coefficient in case of imports of
manufactured goods and significant 1972-73 dummy Jor imports of services
adjusted for interest payment on foreign debt.

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