Price and Income Elasticities of Aggregate Import Demand in Estonia

Abstract

Abstract
The aim of the paper is to estimate the short and long run models for aggregate import
demand in Estonia to understand how changes in the price of domestic goods and services
relative to foreign goods and services affect the demand for imports. The models are
estimated 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 elasticity
of income was found to be statistically insignificant. However, contrary to the short-run
model, import demand is found to be income elastic, while the elasticity of the price of
domestic goods and services relative to foreign goods and services was insignificant in the
long-run model. The elasticities found provide useful information for reference in future
research on import demand in Estonia as well as other European countries.

JEL classification codes: C12, C32, F14, O24
Keywords: Estonian imports, aggregate import demand, price elasticity, income elasticity, autoregressive
distributed lag, bounds test