MEASURING PRICE ELASTICITY OF SECTORIAL IMPORTS

Abstract

Previous published studies have estimated the long-run cointegrating relationship to infer the price elasticity of imports, but a stable long-run cointegrating relationship might not be detected in the data, especially in the case of sectoral data. This paper develops a method to estimate the price elasticity of imports based on a vector autoregression model, which can be applied when a stable long-run cointegration relationship does not exist. The methods developed in past studies and our method are applied to Korean sectoral imports data to illustrate the usefulness of our method.