Changes in import values reflect changes in foreign prices, exchange rates and quantity (volume). Real exchange rates are useful for identifying price and currency effects. Import volumes indicate “real changes” and value gives the overall balance of payments position.
Import volumes tend to move cyclically. In general they increase when home demand is buoyant. For this reason imports might be seen as a safety valve which offsets the inflationary pressure that arise when domestic firms are operating at close to full capacity.
Link to Exports
Imports are also linked to exports. In increase in exports boosts GDP because the goods sold overseas are part of domestic production. When GDP increases, demand and imported goods rises as well.
Imports of goods and services as a percentage of GDP (or of total final demand) indicates the degree of dependence on imports; the higher the figure the more imports displace domestic output and the more vulnerable is the economy to changes in import prices. A sudden rise in import penetration may signal that domestic companies are operating at full capacity and cannot meet increases in demand.