Impact of imports on economic growth

Group Members

Amer AbbasGhulam AbbasM.Adil MaqsoodKaleem UllahIsrar Ahmed

THEORETICAL FRAMEWORK IntroductionThis chapter deals with the mechanics of the problem

under investigation. Therefore, it deals with the research site, the study procedures, theoretical framework, and specification of model and definition of variables.

METHODOLOGY.

The theoretical relationship between imports and economic growth tends to be more complicated than that between exports and growth. The demand for imports is determined by both economic and non-economic factors.

The purpose of this study is to provide an empirical test of the causal relationship between economic growth and imports, especially categories of imports, which are investment goods imports, raw material imports, consumption goods imports and other goods imports.

The focus is Pakistan because recently Pakistan has lived an economic growth with a large current deficit. So, it is wondered if an economic growth causes an increase in imports or import expansion causes the economic growth.

This paper differs from the previous studies in that way; import is decomposed to determine the dynamic relationship between import categories and economic growth, comparing with the relationship between total import and economic growth.

Model specification Y=F (L, K, X)Y stands for GDP L and K respectively stand for the input of labour

and capital factors X stands for the amount of imports and actually it is

a variable added to original production function. Labour force, capital and GDP is not a linear

relation but an exponential relation, but it can be translated into linear relation by taking logarithm and a specific model of multiple linear regression is as follows:

Y= + L + K + X +

Hypotheses Hypotheses # 1H0: Reject HA: AcceptH0: There is no significant relationship between GDP

and Labour.HA: There is significant relationship between GDP

and Labour.

Hypotheses # 2H0: Reject HA: AcceptH0: There is no significant relationship between GDP

and CAPITAL.HA: There is significant relationship between GDP

and CAPITAL.

Hypotheses # 3H0: Accept HA: RejectH0: There is significant relationship between GDP

and IMPORTS.HA: There is no significant relationship between

GDP and IMPORTS.

DEFINITION OF VARIABLES GDP growth The market value of final goods and services newly

produced with in a nation’s boundaries during a fixed period of time. The GDP growth is the dependent variable because it has influence by the other variable.

LabourThe aggregate of all human physical and mental effort

used in creation of services. Labor is a primary factor of production. The size of a nation'slabor force is determined by the size of its adult population, and the extent to which the adults are either working or are prepared to offer their labor for wages.

Capital Factors of production that are used to

create goods or services and are not themselves in the process, like machines.

Imports The term import is derived from the

conceptual meaning as to bring in the goods and services into the port of a country, it include imports of the primary products like raw material.

DATA COLLECTION METHODS AND SOURCESData for this study is collected from secondary

sources like; books, report and internet. The data collected is given a proper setup with the help of applying research tools and procedures.

To obtain secondary data the sources like web- site and publications of state bank of Pakistan, journals and website of ministry of finance, and federal bureau of statistics, library books and IFS etc.

Empirical evidenceY=+ L + K + X +Y= -25587.93+2049.112L-0.028932K+1.067639XInterpretation Dependent variable = GDPIndependent variable = CAPITAL, LABOUR AND IMPORTS= Intercept= coefficient of labour.= coefficient of capital.= coefficient of imports.Values of =-25587.93= 2049.112= -0.028932= 1.067639

1% increase in labour leads to 2049.112% increase in GDP; by taking other factors are constant, and we say that there is positive relationship between labour and GDP, And 1% increase in capital leads to -0.028932% decrease in GDP, we say that there is negative relationship between capital and GDP,And 1% increase in imports leads to 1.067639% increase in GDP,and there is positive relationship between imports and GDP

Ols estimation Dependent Variable: GDP    Method: Least Squares    Date: 05/28/12 Time: 08:55    Sample: 1980 2007    Included observations: 28    

                  

Variable Coefficient Std. Error t-Statistic Prob.                    C -25587.93 3152.315 -8.117186 0.0000L 2049.112 109.2836 18.75040 0.0000

IMP 1.067639 0.364938 2.925539 0.0074CAPITAL -0.028932 0.029335 -0.986238 0.3339

                           

R-squared 0.989750    Mean dependent var 60045.18Adjusted R-squared 0.988468    S.D. dependent var 21932.52S.E. of regression 2355.234    Akaike info criterion 18.49823Sum squared resid 1.33E+08    Schwarz criterion 18.68855Log likelihood -254.9752    Hannan-Quinn criter. 18.55641F-statistic 772.4609    Durbin-Watson stat 0.831716Prob(F-statistic) 0.000000      

         

CONCLUSIONS The aim of this study is to check the impact of

imports on economic growth. In this study we find that there is positive relationship between economic growth and imports. One percent increase in the real GDP due to 1.69 % increase in imports. There is negative relationship between economic growths and capital to the imports, it means the capital is imports from the foreign countries the cash is outflow from domestic to foreigner. This means that there is negative relationship between the imports of capital and economic growth.

Finally the study conclude that the imports are the harmful for the domestic industries the reason is that increase the supply of goods the domestic consumption is shift and demand for the foreign goods are increase. But in a country the overall growth performance is increase.

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