Modeling the pattern of structural change in Saudi Arabian import demand (gradual switching regression)

The question of stability in import demand in the atea of international trade is of eminent practical importance. In this paper, the hypothesis of structural change in Saudi Arabian import demand is tested in five regions using LNAIDS (Linear Approximation of Almost Ideal Demand System) system with parameters following a gradual switching regression model. The results derived provide evidence of structural change in Saudi Arabian import demand. The structural change was biased against Arab countries and Japan, neutral for imports from United States, in favor of Europe and rest of the world, and it does affect estimated elasticities. The time path of structural change began in 1980 and completed in 1988. The estimated coefficients of the second-stage LNAIDS and first-stage import demand were combined to obtain the total effects of price and income changes on imports by source before 1980 and after 1988. However, after 1988, Japan is the only source that has own-price elasticities greater than one. Income elasticities are greater than one in nine of the ten cases. Finally, the finding of structural shift in expenditures on Saudi Arabian import demand during the I 980s suggests the use by researchers of post 1988 data or the use of oth~r measures that take into accounts this shift for policy analysis and forecasting