The impact of oil prices on import demand in an oil-rich country: A multisectoral Bayesian approach

Abstract

This study examines Qatar’s import demand function across sixteen economic sectors, employing a Bayesian approach to estimate the price, income and oil price elasticities. The findings reveal that import demand is predominantly price inelastic (−0.079 to −0.21), reflecting the country’s heavy reliance on imported goods due to limited domestic alternatives. In contrasts, income elasticities are highly elastic (4.582 to 6.353), indicating that import demand rises sharply with increasing income levels. Additionally, oil prices positively influence import demand in sectors such as Metals and Machinery/Electrical, highlighting that higher oil prices, which typically correlate with increased government revenues, lead to higher industrial imports. However, this dependence on oil revenues poses economic valnerabilities due to oil price fluctuations. Comparisons with oil-dependent economies such as Saudi Arabia, Kuwait, and the UAE confirm this pattern, whereas Norway’s sovereign wealth mechanisms mitigate such volatility. The findings indicate that price-based policies (e.g. tariffs) alone are insufficient to manage import volumes, emphasizing the need for structural economic reforms including diversification and enhanced domestic production. Given the high-income elasticities, strategic infrastructure investmentsin trade logistics and port facilities, are crucial to handle growing import volumes. Finally, by drawing parallels with other resource-rich economies, this research provides broader policy insights for oil exporting nations, stressing diversification, fiscal stabilization and trade resilience.