Price and Income Elasticities of Aggregate Import Demand in Estonia

Markus Alttoa
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Markus Alttoa: Tallinn University of Technology

Research in Economics and Business: Central and Eastern Europe, 2018, vol. 10, issue 2

Abstract: AbstractThe aim of the paper is to estimate the short and long run models for aggregate importdemand in Estonia to understand how changes in the price of domestic goods and servicesrelative to foreign goods and services affect the demand for imports. The models areestimated using the Autoregressive Distributed Lag model and bounds cointegration test.The results indicate that import demand is price elastic in the short run, while the elasticityof income was found to be statistically insignificant. However, contrary to the short-runmodel, import demand is found to be income elastic, while the elasticity of the price ofdomestic goods and services relative to foreign goods and services was insignificant in thelong-run model. The elasticities found provide useful information for reference in futureresearch on import demand in Estonia as well as other European countries.JEL classification codes: C12, C32, F14, O24Keywords: Estonian imports, aggregate import demand, price elasticity, income elasticity, autoregressivedistributed lag, bounds test

Date: 2018
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