The Determinants of the Domestic Prices of Imports

In: The Pakistan development review: PDR, Band 4, Heft 4, S. 597-622

Abstract

Imports play a key role in the economy of Pakistan, especially
since they provide a large share of the nation's industrial raw
materials and most of its capital goods. Scarce foreign exchange is
rationed and allocated among different types of commodities through an
elaborate licensing system. To cope with the needs of the economy there
has been liberalisation of imports in recent times. Proposals for
further liberalisation and alternative proposals for rationing foreign
exchange through an import surcharge system or an exchange auc¬tioning
system have also been put forward. But, in the absence of empirical
evidence regarding scarcity value of foreign exchange and the domestic
prices of imports, the impact of these changes on the import sector and
there from on the economy could not be definitely estimated. Different
assumptions have been made regarding these magnitudes resulting in very
different conclusions about the impact of various policies. A study of
the facts is necessary under these circumstances, and so we have
embarked on an empirical study regarding the determinants of the
domestic prices of imports.