THE ASYMMETRIC EFFECT OF INCOME ON IMPORT DEMAND IN GREECE.
Ioanna C. Bardakas
Bank of Greece
ABSTRACT
This paper presents empirical evidence supporting the argument that a significant asymmetry exists in the income elasticity of Greek imports. Using multivariate cointegration techniques for the estimation of long-run imports we derive short-run error correction equations that separate income elasticities for periods when income is rising and periods when it is falling. The empirical results show that the response of imports to rising income is stronger than the response of imports to falling income. The important policy implication of this asymmetry is that a consecutively positive growth would lead imports to continuously increase causing the current account deficit to persistently widen.
JEL classification: F14, C22, C32, C51
Keywords: Import demand, asymmetric income elasticities, multivariate cointegration, short-run error correction, current account deficit, structural reforms.
Acknowledgements: I would like to express my gratitude and appreciation to G. Zombanakis for his useful recommendations and patient guidance and to H. Gibson for providing her valuable and constructive suggestions on earlier versions of this paper. The views expressed are the author’s and do not necessarily reflect those of the Bank of Greece. All remaining errors are my own.
Correspondence:
Ioanna C. Bardakas
Bank of Greece
21, El. Venizelos Ave.
10250 Athens, Greece
Tel.:0030-210-3202397
Email: impardaka@bankofgreece.gr