Import Functions for Pakistan – A Simultaneous Equation Approach

It is highly desirable that the behaviour of imports is studied in both demand and supply scenarios. Many studies in international trade have estimated the price elasticities of demand but very few studies have been used to study supply behaviour in international trade. However, Khan (1974), Haynes and Stone (1983 a) and Arize (1986), using Simultaneous Equations estimation have reported estimates of import supply in international trade. To study the true behaviour of imports, the choice of the functional form is important. Different researchers have used different forms according to their objectives and inclinations. Leamer and Stern [(1970), pp.8-19] have discussed at length the functional form of the import demand but they have not said anything about import supply. Leamer and Stern (1970) noted that the linear and log-linear forms of the import demand are: