Definition: Econometric model are statistical models used in economics. An econometric model specifies the statistical inter-relationship that is believed to exist between various economic quantities pertaining to a given economic observable fact under study. Econometric models can be derived from deterministiceconomic model bycreating room for uncertainty, or from any economic model which isstochastic.Nevertheless, it is possible to utilize econometric models that do not depend on any specific economic theory

In this paper  I purpose to view the relationship of America’s imports with the amount of disposable income available to American citizens over the decade between 1990 and 2000.This review is aimed at coming up with the relationship between particular economies and the world trade.

The importance of this study is to show the impacts of the improvement of the individual income to the international trade. Improvement of the American individual income impacts the international trade by affecting individual demand for imported goods and services. Therefore an increase in individual incomes in the USA translates to increased imports. A decline in individual incomes in the USA citizen’s income translates to lower levels of imports since citizens concentrate on more essential commodities which are mainly locally produced. (Johansson 102)

Aims of the paper:

This research paper has several goals concerning the relationship of imports and disposable income. These include;

a)      The effects of changes in disposable income caused by various monetary policies ,fiscal policies and exchange rates to the level of imports between The USA and other  economic giants.

b)      The effects of income change in the USA to the level of imports over several decades.

c)      The effects of change in disposable income to the exchange rates and how this impacts the import of goods and services in USA over various years.

These goals are to be achieved will be achieved through various economic methods. These methods include 

a)      Analyzing the levels of imports into the USA in the past three decades.

b)      Checking expenditure costs of the USA in the past

In analyzing the effects of disposable income on the import sector in USA we use a linear econometric model to test whether the relationship between imports and exports is either a direct relationship or an inverse relationship (Perron, 57). In this model the finding help the researcher or policy maker to view in a broader way the impact simple internal economic decisions in the USA affect the global economy. The findings are aimed at even providing a greater picture on how labor unions promote either a fall or an improvement in international trade. (Armington, 78)

In this paper the linear model aims at checking the linear relationship between levels of imports into the USA and the American citizen’s disposable income. In this model the important and interesting part is to see whether people spend more of their new wealth on imports for luxurious items or they spend their money in their home country.( Babula and Coleman, 87) In our linear model used to determine the amount of new wealth spent on imported goods is shown below;

Y=a+ kick (t-i)+e(t)

Where

Y: represents total income spent on imports in USA

a: represents the autonomous commodity imported  in the USA economy over  the past decades

C (t-i): represents the disposable income used to import goods to the USA

e(t): represents the  error term measuring the level to which the model cannot explain consumption to detail.

a and k;represent estimated parameter values. These when used in the model's equation, enable predictions for various future values amount of consumption to be made on the annual income of the USA citizen. (Bailey. 61)

Economic theory

In this model our economic theory is that the level of imports is directly related to the amount of wealth in the American citizenspossession. This is because the wealthier the citizens of any given nation the higher the level of disposable income available .This then translates to a higher level of imports since high wealth encourages the purchase of both basic and luxurious commodities. This increased demand translates to higher imports since no single economy is capable of meeting all the demands of the society members by it. (Armington, 102)

In this model the linear relationship between imports and the level of the nation’s wealth is also influenced by various exogenous factors such as tax rates, exchange rates between countries, various protective policies shielding young industries from the extreme competition from   foreign multinational companies and other diplomatic relationships between the USA and other foreign states. (Bailey 167)

This linear econometric model is important in helping analyze the impacts of gradual economic improvements of the United States of America’s have on the international trade platform. Since there is a linear relationship between levels of imports and wealth levels of the USA citizen then imports to the USA economy changes in a manner similar to the changes in income (Perron 84)

In this model our parameters are indicated by various s indicators in the economy .In this model the level of imports are indicated by the various levels of balance of payments in the economy. The higher the balance of payments the higher the level of imports in any given economy.

The level of disposable income can also be checked on how it relates to levels of wealth and levels of imports. These can only be done through the analysis import data in the past.

United States of America data on the relationship between disposable income and levels of imports.

DATE

IMPCA

IMPFR

IMPGE

IMPJP

IMPMX

1992-01-01

7169.6

1076.0

1996.2

7608.8

2493.6

1992-02-01

7653.2

1067.2

2027.2

7433.0

2612.4

1993-03-01

10173.5

1353.6

2555.1

9662.9

3455.0

1994-05-01

10662.0

1361.0

2804.0

8509.0

4033.0

1994-06-01

11346.0

1402.0

2684.0

10112.0

4194.0

1995-03-01

12610.4

1608.7

3005.5

11732.1

5480.8

1995-04-01

12012.2

1507.0

3246.0

11180.0

4727.8

1996-04-01

13047.4

1490.8

3225.2

9913.3

5993.6

1997-10-01

15044.6

2008.1

3883.2

11203.4

8458.4

1999-11-01

18176.0

2379.0

5085.0

11579.0

10001.0

2000-10-01

20500.0

2821.0

5162.0

14065.0

12814.0

2001-05-01

19603.0

2612.0

5219.0

9606.0

11431.0

2002-12-01

16644.0

2518.0

6341.0

11241.0

10144.0

2003-01-01

17808.6

2398.0

4833.3

9144.9

10842.7

The above data shows the amounts of import to the United States of America between 1990 and 2003.

In the above data the imports of the United States government are seen to be on the gradual rise from 1990 to 2003.This can be attributed to the economic growth in the United States economy over the past decades. The increased wealth of the American economy over the past years may be attributed by increased exploitation of available opportunities in the USA. However the increase in imports in the United States of America cannot only be attributed to increased wealth alone since current trends in the production industries have seen the shipping of processing industries to countries with lower production costs. Such countries include some developing nations in Africa and countries in Asia such as china and Japan. (Baile. 78)

These current trends in production industries in the United States have also resulted to more returns to owners of factors of production in the United States .This has the impact of increasing the tax to the government resulting to higher minimum incomes set by policy makers .This has the effect of increasing the American citizen’s disposable income hence stimulating higher. ( Boughner and Sheldon, 92)

In the data above the trend of the economic performance of the USA can be analyzed showing a gradual improvement in the performance of the economy over the past years. This is however not very effective since it does not show the magnitude of various economic events such as the boom and recession.

Conclusions

The objective of this study was to analyze imports of various products that directly

Affect the life of the domestic U.S. market. This involved analyzing the relevant

HTS import data reflecting significant quantities of imports into the United States economy. It also involvedquantifying the imports based on the country of origin for example France, the United Kingdomand China.  This is important in coming up with a supply and demand bookkeeping system for United States imports. (Markowski, and Nandakumar, 67).

Another objective was to approximate an econometric model of United States over-quota imports of various goods and services. A theoretical model was created and an econometric model estimated. This model can be used to forecast and oranalyze policy purposes.

Ialso specified an income model that reasonably explainsthe relationship between level of imports and the national wealth levels together with the level of disposable income.

This model can be utilized in various fields including policy analysis and forecasting. This

Modelcan be expanded to estimate monthly imports of other key imports to the United States economy (Goldstein and Kahn, 70)

However care mustbe taken to estimate the right time lags for the

Price wedges.Given the potential impact of

imports of various commodities in the United States market in light of the current and future WTOsuch a model would be useful for both price and policy analysis.

Our study does however result in a number of limitations. We focused on measuring the

Significant effect of the price wedge relative to the over-quota tariff in explaining imports.

Therefore, we only included major income factors in our econometric model.

Thus variablesare important and should be taken into consideration in future research. Lastly, a lot of care must be taken when measuring and correcting for correlation of the error terms in various studies in the future. (Perron, 97)

In this model the effects of inequalities in income in the United States economy pose a great threat on the effectiveness of our model since an increase in the income or wealth of a few United States citizens and the consequent increase in demand for imports provides a biased view of the whole economy. This phenomenon occurs since a single company making large tonnages of various commodities may be viewed as the general activities of the whole economy while it is not.

This effect can be solved by categorizing of imports to the United States into more representative groups. These groups can be like; domestic goods imports, luxury goods imports and manufacturing goods. (Goldstein and Kahn 88).This would be more representative since imports on the domestic goods would provide a more representative approach on the commodities utilized by majority of the economic stakeholders in the United States.

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