USING THE FOREIGN TRADE ELASTICITIES IN POLICY OF DEMAND OF IMPORTS OF AGRICULTURAL PRODUCTS IN IRAQ.

Foreign trade elasticities are considered to be crucial for both economic forecasting and international policy analysis. The value of trade elasticities has remained the subject of diverse opinion in most international economic policy debates. Therefore, this paper uses import substitution model framework to estimate the price and income elasticities of imports demand on agricultural products in Iraq for the period 1980 - 2018. We use Autoregressive Distributed Lag model (ARDL) to study the long run relationship between variables of the study. The results of the unit root test based on ADF and PP provide justification for the use of ARDL bound test. The co-integration results show that there is a long run relationship between import demand of agricultural products and the chosen explanatory variables, thus all the variables move together in the long run. The estimated long run coefficients show that the price and income elasticities of import demand of agricultural products in Iraq were about 0.01 and 0.45 respectively during the period covered. This implies that the long run import demand of agricultural products in Iraq has been price-and income-inelastic since the sizes of the coefficients of real GDP and relative agricultural prices were less than unity and among the explanatory variables studied, real GDP was the main determinant of import demand of agricultural products in Iraq. Furthermore, the long run coefficient of domestic prices which is also regarded as the cross price elasticity of import demand of agricultural products with respect to local products was about 0.046 and statistically insignificant, thus there is evidence of imperfect substitution between import agricultural products and domestically products. The results from the short run of the model suggest that about 52% of the disequilibrium between the long run and short run import demand on agricultural products is corrected each year. [ABSTRACT FROM AUTHOR]