Demand for Imports

The Quarterly Review of Economics and Finance 50 (2010) 254–263

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The Quarterly Review of Economics and Finance

journal homepage: www.elsevier.com/locate/qref

Import demand behavior in Africa: Some new evidence

Augustine C. Arize 1 , Srinivas Nippani ∗

of Business and Technology, Texas A&M University-Commerce, PO Box 3011, Commerce, TX 75429-3011, United States

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Some African economies have experienced increases in the level of their foreign exchange reserves as well as increases in their import volume. Theory suggests that as the level of exchange reserves increases, it may affect the demand for imports since more funds will be available for imports. This paper examines import demand behavior in three African economies, namely Kenya, Nigeria and South Africa. An empirical analysis of import demand behavior is presented, based on the dynamic error-correction model, which allows an explicit parameterized division of effects into long-run influences, short-term adjustment and error-correction term. It uses econometric techniques organized around Johansen and Harris–Inder cointegration analyses; fully modified OLS, dynamic OLS and non-linear OLS to estimate long-run import demand functions. Published by Elsevier B.V. on behalf of The Board of Trustees of the University of Illinois.

Article history: Received 8 December 2008 Received in revised form 26 November 2009 Accepted 25 February 2010 Available online 4 March 2010 JEL classification: D53 E44 Keywords: Import demand Foreign exchange reserves Cointegration

1. Introduction Over the past two decades, some less developed countries (hereafter, LDCs) in Africa have experienced increases in their foreign exchange reserves as well as increases in their import volume. For example, Nigeria leads Africa in foreign reserve ranking, with $43.307 billion in 2006, and is ranked 27th in the global listing of nations with the...