An Analysis of South Korea's Import Demand

Abstract

This article, applying Johansen multivariate cointegration analysis and error correction modeling techniques, analyses the relationship between Korean imports and the components of final demand expenditure and relative prices. Firstly, the major determinants of import demand in the long run are found to be relative price, final consumption expenditure and export demand with elasticities 0.6, 1.04 and 0.49 respectively. Secondly, in the case of import demand specification with disaggregated income variable, final consumption expenditure, relative price and capacity utilization are found to Granger-cause import demand in the short run. Thirdly, the different estimation results between the components basis and aggregation basis imply the traditional estimation can cause an aggregation bias.