THE PAKISTAN DEVELOPMENT REVIEW
The Determinants of the Domestic Prices of Imports
Imports play a key role in the economy of Pakistan, especially since they provide a large share of the nation’s industrial raw materials and most of its capital goods. Scarce foreign exchange is rationed and allocated among different types of commodities through an elaborate licensing system. To cope with the needs of the economy there has been liberalisation of imports in recent times. Proposals for further liberalisation and alternative proposals for rationing foreign exchange through an import surcharge system or an exchange auc¬tioning system have also been put forward. But, in the absence of empirical evidence regarding scarcity value of foreign exchange and the domestic prices of imports, the impact of these changes on the import sector and there from on the economy could not be definitely estimated. Different assumptions have been made regarding these magnitudes resulting in very different conclusions about the impact of various policies. A study of the facts is necessary under these circumstances, and so we have embarked on an empirical study regarding the determinants of the domestic prices of imports.