The Effects of Trade Liberalization on Import Demand: A Panel Data Study

This paper analyses the impact of reduction of tariff and non-tariff barriers on the imports of selected developing countries, utilizing dynamic panel data technique. The results indicate that Income and price elasticities are strongly statistically significant and reduction of import duties and increase of trade liberalization degree have a positive and significant effect on import growth. This effect increases import growth between 100 to 300 percent in all countries. Also, we test if the income elasticity of import demand changes with trade liberalization, and also if the price elasticity changes as the ability to substitute domestic production for imports becomes easier. The assumption is that trade liberalization has a significant impact not only on the growth of imports, but also on their sensitivity to income and price variations.