The thesis of this study is that the stock of foreign
exchange reserves is an important factor determining the
level of Iran's demand for imports. The study examines the
relationship between imports and foreign exchange reserves
for total imports, consumer goods imports, intermediate
goods imports, and capital goods imports. It is found that
foreign exchange reserves constitute an important determinant
of the demand for each of these import categories, but
the greatest dependence occurs for imports of consumer
goods. This pattern of dependency reflects the Iranian
government's priorities in allocating foreign exchange
among competing categories of imports. The dependence of
various import categories on the stock of foreign exchange
reserves reflects a reallocation -of an ample stock of foreign
exchange in a manner which a free, an unrestricted,
market would not dictate, so that the composition of imports
is thereby changed.