The Role of Foreign Direct Investment in Canada`s Demand for Imports: 1971-1982

The Role of Foreign Direct Investment in Canada`s Demand for Imports: 1971-1982

In this paper we include a foreign ownership variable in the traditional and partial adjustment import demand functions and examine the role of foreign direct investment in Canada`s demand for imports. We examine the stochastic process generating the error structure of the estimated models and adopt appropriate techniques for estimation purposes. The extent to which the adjustment between actual and long run demand for imports occurs in both models is also examined, In the process, we comapre the relative performance of the two models in explaining the demand for imports in Canada over the sample period 1971-1982. The results provide strong support for the partial adjustment model and suggest a positive and significant role of the foreign control variable in the Canadian demand Jar improts.