An Investigation of Iran's Import Demand Structure: An Application of AIDS Model (1978-2002)

This paper tends to estimate the long-run import budget share, arising from various supplying resources for Iran. The formulation is based upon typical model of the Almost Ideal Demand System (AIDS). After estimating import demand, we test the hypothesises that import demand is homothetic, homogenous and symmetric. Using the dynamic adjustment process of the first order of Error Correction Model (ECM), the paper estimates the long-run balanced import budget shares, domestic sales share as well as long-run expenditure and compensated price elasticites over the 1978-2002 period. Estimation results obtained indicate that implementing trade liberalization policy can possibly lead the share of domestic sales to decline, while total import budget share to grow resulting in trade expansion, and particularly, trade flows to be deviate from other partners to Iran’s second ten major trading partners.