MODELING MANUFACTURED IMPORTS - METHODOLOGICAL ISSUES WITH EVIDENCE FROM AUSTRALIA

This paper investigates the relationship between manufactured import f low to Australia, and relative prices and domestic economic activity n et of cyclical demand effects over the period 1981Q3 to 1991Q2. This i s done through the estimation of import demand functions for total man ufactured imports and nine major import categories using the general-t o-specific modeling approach. We find that the homotheticity assumptio n on activity elasticity is met in most cases. The price elasticity es timates for individual categories range from 0.32 to 2.1, with a weigh ted average of 0.52. We also find some evidence of upward bias in pric e elasticity estimates when an aggregate import function is employed i n a context where a significant portion of imports are subject to quan titative restrictions (QRs).