The Functional Form of the Aggregate Import Demand Equation: Evidence from Developing Countries

Abstract

The specification of the appropriate functional form of the aggregate import demand equation is an important methodological problem, which affects the estimates of demand elasticities and the conclusions about the impact of policy changes. In the absence of any guidance from economic theory we determine the appropriate form empirically using a generalized functional form based on the Box-Cox method and find, that for a large number of developing countries the log-linear form is the prefer. red choice for the aggregate import demand equation.