An Investigation of the Composition of Iran's Import Demand: Capital, Intermediate and Consumer Goods during 1978-2004



The objective of this study has been to develop a typical specification of the Almost Ideal Demand System (AIDS) for Iran’s composition of imports including capital, intermediate and consumer goods. Accordingly, we first test the hypotheses that import demand is homothetic, homogeneous, symmetric, and depends on domestic prices. Then, we estimate the long-run elasticities of the composition of imported goods and domestic supplies by the SUR method over the period 1978-2004.  The estimation results indicate that the import allocation model is affected by the domestic supplies, whereas homogeneity and symmetry are rejected, and a dynamic unrestricted model of the AIDS system is selected properly for the structure of the country’s imports over the mentioned period. All commodity groups are ordinary while consumer imports and domestic supplies are necessary. All price elasticities have the expected signs, and intermediate and capital imported goods have a complementary relationship. But both types of imports have a substitution relationship with the domestically produced and consumed goods.  JEL Classification: C30, D12, F14.