A cointegration analysis of Malaysian import demand function: reassessment from the bounds test

Tuck Cheong Tang () and Mahendhiran Nair

Applied Economics Letters, 2002, vol. 9, issue 5, 293-296

Abstract: This paper presents an empirical analysis of the aggregated import demand behaviour for Malaysia. The study involved a small sample of annual data from 1970 to 1998. To estimate the long-term relationship between import demand, and its determinants, namely income and relative prices, a robust estimation method known as the Unrestricted Error Correction Model - Bounds Test Analysis was used. The results show that import volume, income and relative prices are cointegrated. The estimated long-run elasticites of import demand with respect to income and relative prices are 1.5 and -1.3 respectively. This implies that monetary, fiscal and exchange rate policies can be used as instruments to maintain favourable trade balance.

Date: 2002
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DOI: 10.1080/13504850110073471

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