ABSTRACT
The traditional approach to estimating the demand for imports relates changes in the quantity of imports to changes in income and relative prices. The second approach to estimating the demand for imports employs a split-price specification as opposed to the price ratio. A final formulation of the demand for imports involves the decomposition of the imported price into changes in foreign prices and changes in the exchange rate. Foreign prices represents the price of imports expressed in foreign currency separate from the exchange rate. The advantage of this specification is that it allows one to view how imports respond to changes in the exchange rate as a separate issue. Since the quantity of imported oil, energy products, agricultural products, crude materials, etc. may be less responsive to changes in income and relative prices, it is common to estimate the elasticities for total imports minus various offending categories.
