On the Stability of Nigeria's Import Demand: Do Endogenous Structural Breaks Matter?
DOI:
https://doi.org/10.6000/1929-7092.2014.03.18Keywords:
Import, Structural Breaks, Cointegration, Causality, NigeriaAbstract
In this paper, we reassess the traditional import demand function and an augmented version that includes volatility of external reserves and oil revenue inflows as explanatory variables. In each version, we examine the role of regime shifts on the stability of Nigeria's import demand function which has been ignored in previous studies. Our findings suggest the existence of a long-run relationship between import demand and its determinants. We also present evidence of one-way causality running from changes in relative prices, oil revenue inflows and volatility of international reserves to import demand in Nigeria. However, when structural breaks were introduced, bi-directional causality is observed; indicating the critical role of regime shifts in determining the stability of Nigeria's import demand. The results make a case for diversifying Nigeria's revenue inflows in a bid to dampen the effect of contemporaneous shocks that affect external reserve accumulation thereby weakening its import financing capacity.References
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http://dx.doi.org/10.1080/000368496327967
Ajayi, S.I. 1975. “Econometric analysis of import demand function for Nigeria.” The Nigerian Journal of Economic and Social Studies 17 (3): 169–182.
Aliyu, S. U. R., 2007. “Imports-exports demand functions and balance of payment stability in Nigeria: a cointegration and error correction modelling.” MPRA Paper No. 10396.
Altinay, G. and Karagol, E. 2004. “Structural break, unit root and the causality between energy consumption and GDP in Turkey.” Energy Economics 26: 985-994.
http://dx.doi.org/10.1016/j.eneco.2004.07.001
Arize, A. 1987. “The Elasticities and Structural Stability of Import Demand for Nigeria, 1960 -1997.” Social and Economic Studies 36:171-86.
http://dx.doi.org/10.1111/j.1467-9701.2007.01052.x
Arize, A. C. and Osang, T. 2007. “Foreign exchange reserves and import demand: Evidence from Latin America.” The World Economy, 30(9) 1477-1489.
Aziz, M. N. 2013. “Modelling of import demand function for a developing country: an empirical approach.” Asian-African Journal of Economics and Econometrics. 13(1), 1-15.
Babatunde, M. A. and Egwaikhide, F.O. 2010. “Explaining Nigeria’s import demand behaviour: a bound testing approach.” International Journal of Development Issues 9(2):167-187.
http://dx.doi.org/10.1108/14468951011062354
Bathalomew, D. 2010. ‘An Econometric Estimation of the Aggregate Import Demand Function for Sierra Leone.’ Journal of Monetary and Economic Integration 10(4).
Binh, P. T. 2011. “Energy consumption and economic growth in vietnam: threshold cointegration and causality analysis.” International Journal of Energy Economics and Policy1(1):1-17.
Bowen, H. P., Hollander, A. And Viaene, J-M. 1998. Applied international trade analysis. Macmillan Press Ltd. London.
Caporale, G. M. and Pittis, N. 1999. “Efficient estimations of cointegrating vectors and testing for causality in vector autoregressions.” Journal of Economic Surveys 13:3-35.
Central Bank of Nigeria (2011) Statistical Bulletin.
Chang, T., Ho, Y. and Huang, C., 2005. “A re-examination of South Korea’s aggregate import demand function: a bounds test analysis.” Journal of Economic Development30: 119-128.
Clarke, J and Mirza, S. A. 2006. “Comparison of some common methods of detecting Granger non-causality.” Journal of Statistical Computations and Simulations 76:207-231.
http://dx.doi.org/10.1080/10629360500107741
Constant, N. Z. S. and Yue, Y. 2010. “An econometric estimation of import demand in Cote d’Ivoire.” International Journal of Business and Management 5: 2.
http://dx.doi.org/10.5539/ijbm.v5n2p77
Dickey, D. A. and Fuller, W. A. 1979. “Distribution of the estimators for autoregressive time series with a unit root.” Journal of American Statistical Association 74:427-431.
Dutta, D. and Ahmed, N. 2001. “An aggregate import demand function for India: a cointegration analysis.” http://www.eprints.anu.edu.au/archive/00001731/ (accessed on 20/6/2013).
Egwaikhide, F. E. 1999. “Determinants of imports in Nigeria: A dynamic specification.” African Economic Research Consortium Research Paper, No. 91.
Emran, M. S. and Shilpi, F. 2001. “Foreign trade regimes and import demand function: Evidence from Sri Lanka, Working Paper, International Trade, EconWPA.
Esso, L. J. 2010. “Threshold cointegration and causality relationship between energy use and Growth in seven African countries.” Energy Economics 30:2391-2400
Faini, R., Pritchett, L. and Clavijo, F. 1988. “Import demand in developing countries.” The World Bank, Working Paper, No. 122.
Goldstein, M. and Lawrence H. O. 1980. “New Measures of Prices and Productivity for Tradable and Non-tradable Goods”. Review of Income and Wealth 25: 413-427.
http://dx.doi.org/10.1111/j.1475-4991.1979.tb00116.x
Gregory, A. and Hansen, B. 1996. “Residual-based tests for cointegration in models with Regime Shifts.” Journal of Econometrics 70:99–126.
http://dx.doi.org/10.1016/0304-4076(69)41685-7
Gumede, V. 2000 “Import demand elasticities for South Africa: A cointegration analysis”. Journal for Studies in Economics and Econometrics, Vol. 24, pp. 21-37.
Harb, N. 2005. “Import demand in heterogeneous panel setting. Applied Economics, 37(20): 2407-2415.
http://dx.doi.org/10.1080/000368405002000345550
Harvey, S. and Sedegah, K. 2011. “Import demand in Ghana: Structure, behaviour and stability” AERC Research Paper 233
Hemphill, W.L. 1974. “The effects of foreign exchange receipts on imports of less developed countries”. IMF Staff Working Paper, 27: 637-677.
Ho, W. S. 2004. “Estimating Macao’s import demand functions”, Monetary Authority of Macao Working Paper No. 18
Hong, P. 1999. “Import elasticities revisited”. Discussion Paper No. 10, Department of Economic and Social Affairs, United Nations.
Kotan, Z. and Saygili, M. 1999. “Estimating an import function for Turkey”. The Central Bank of Turkey, Research Department Working Paper No. 9909.
Menyah, K. and Wolde-Rufael, Y. 2010. “Energy consumption, pollutant emissions and economic growth in South Africa”. Energy Economics, 32, 1374-1382.
http://dx.doi.org/10.1016/j.eneco.2010.08.002
Min, B.S., Mohammed, H.A. and Tang, T.C., 2002. “An analysis of South Korea’s import demand.” Journal of Asia Pacific Affairs 4: 1-17.
Mohammed, H. A. and Tang, T.C. 2000. “Aggregate imports and expenditure components in Malaysia: a cointegration and error correction analysis”. ASEAN Economic Bulletin 17:257-69.
http://dx.doi.org/10.1355/AE17-3B
Narayan, P. K. and Narayan, S. 2005. “An empirical analysis of Fiji’s import demand function”. Journal of Economic Studies 32(2):158-168.
http://dx.doi.org/10.1108/01443580510600931
Olayide, S.O. 1968. “Import Demand Model: An Econometric Analysis of Nigeria's Import Trade”. The Nigerian Journal of Economic and Social Studies 10(3): 303–319.
Omoke, P. O. 2012. “Aggregate Import Demand and Expenditure Components in Nigeria”. Economica 8(1).
Perron, P. 1989. “The great crash, the oil price shock and the unit root hypothesis”. Econometrica 57:1361-1401.
http://dx.doi.org/10.2307/1913712
Rambaldi, A. N. and H. E. Doran 1996. “Testing for granger non-causality in cointegration systems made easy,” Working Paper No.88. Department of Econometrics, University of New England.
Sachs, J. 1982. “The current account in the macroeconomic adjustment process”. The Scandinavian Journal of Economics, 84(2): 147-159.
http://dx.doi.org/10.2307/3439631
Senhadji, A. 1998. “Time-Series estimation of structural import demand equations: A cross- country analysis”. IMF Staff Papers, 45(2): 236-268.
http://dx.doi.org/10.2307/3867390
Sinha, D. 1997. “Determinants of import demand in Thailand”. International Economic Journal; 11(4) Winter 1997.
Tang and Nair, M. 2002. “A cointegration analysis of Malaysian import demand function: Reassessment from the bounds test”. Applied Economic Letters 9 (5): 293-296.
http://dx.doi.org/10.1080/13504850110073471
Tang, T. C. 2003. “An empirical analysis of China’s aggregate import demand function”. China Economic Review 12(2):142-63.
http://dx.doi.org/10.1016/S1043-951X(03)00021-X
Tang, T.C 2005. “Revisiting South Korea’s import demand behavior: A cointegration analysis”. Asian Economic Journal 19(1):21-50.
http://dx.doi.org/10.1111/j.1467-8381.2005.00203.x
Toda, H.Y. and Yamamoto, T. 1995. “Statistical inferences in vector autoregressions with possibly integrated processes”. Journal of Econometrics 66: 225-50.
http://dx.doi.org/10.1016/0304-4076(94)01616-8
Xu, X. 2002. “The dynamic-optimizing approach to import demand: A structural model. Economics Letters, 74(2): 265-270.
http://dx.doi.org/10.1016/S0165-1765(01)00538-9
Zivot, E. and D. Andrews, 1992. “Further evidence of great crash, the oil price shock and unit root hypothesis”. Journal of Business and Economic Statistics 10:251-270.
http://dx.doi.org/10.1080/000368496327967
Ajayi, S.I. 1975. “Econometric analysis of import demand function for Nigeria.” The Nigerian Journal of Economic and Social Studies 17 (3): 169–182.
Aliyu, S. U. R., 2007. “Imports-exports demand functions and balance of payment stability in Nigeria: a cointegration and error correction modelling.” MPRA Paper No. 10396.
Altinay, G. and Karagol, E. 2004. “Structural break, unit root and the causality between energy consumption and GDP in Turkey.” Energy Economics 26: 985-994.
http://dx.doi.org/10.1016/j.eneco.2004.07.001
Arize, A. 1987. “The Elasticities and Structural Stability of Import Demand for Nigeria, 1960 -1997.” Social and Economic Studies 36:171-86.
http://dx.doi.org/10.1111/j.1467-9701.2007.01052.x
Arize, A. C. and Osang, T. 2007. “Foreign exchange reserves and import demand: Evidence from Latin America.” The World Economy, 30(9) 1477-1489.
Aziz, M. N. 2013. “Modelling of import demand function for a developing country: an empirical approach.” Asian-African Journal of Economics and Econometrics. 13(1), 1-15.
Babatunde, M. A. and Egwaikhide, F.O. 2010. “Explaining Nigeria’s import demand behaviour: a bound testing approach.” International Journal of Development Issues 9(2):167-187.
http://dx.doi.org/10.1108/14468951011062354
Bathalomew, D. 2010. ‘An Econometric Estimation of the Aggregate Import Demand Function for Sierra Leone.’ Journal of Monetary and Economic Integration 10(4).
Binh, P. T. 2011. “Energy consumption and economic growth in vietnam: threshold cointegration and causality analysis.” International Journal of Energy Economics and Policy1(1):1-17.
Bowen, H. P., Hollander, A. And Viaene, J-M. 1998. Applied international trade analysis. Macmillan Press Ltd. London.
Caporale, G. M. and Pittis, N. 1999. “Efficient estimations of cointegrating vectors and testing for causality in vector autoregressions.” Journal of Economic Surveys 13:3-35.
Central Bank of Nigeria (2011) Statistical Bulletin.
Chang, T., Ho, Y. and Huang, C., 2005. “A re-examination of South Korea’s aggregate import demand function: a bounds test analysis.” Journal of Economic Development30: 119-128.
Clarke, J and Mirza, S. A. 2006. “Comparison of some common methods of detecting Granger non-causality.” Journal of Statistical Computations and Simulations 76:207-231.
http://dx.doi.org/10.1080/10629360500107741
Constant, N. Z. S. and Yue, Y. 2010. “An econometric estimation of import demand in Cote d’Ivoire.” International Journal of Business and Management 5: 2.
http://dx.doi.org/10.5539/ijbm.v5n2p77
Dickey, D. A. and Fuller, W. A. 1979. “Distribution of the estimators for autoregressive time series with a unit root.” Journal of American Statistical Association 74:427-431.
Dutta, D. and Ahmed, N. 2001. “An aggregate import demand function for India: a cointegration analysis.” http://www.eprints.anu.edu.au/archive/00001731/ (accessed on 20/6/2013).
Egwaikhide, F. E. 1999. “Determinants of imports in Nigeria: A dynamic specification.” African Economic Research Consortium Research Paper, No. 91.
Emran, M. S. and Shilpi, F. 2001. “Foreign trade regimes and import demand function: Evidence from Sri Lanka, Working Paper, International Trade, EconWPA.
Esso, L. J. 2010. “Threshold cointegration and causality relationship between energy use and Growth in seven African countries.” Energy Economics 30:2391-2400
Faini, R., Pritchett, L. and Clavijo, F. 1988. “Import demand in developing countries.” The World Bank, Working Paper, No. 122.
Goldstein, M. and Lawrence H. O. 1980. “New Measures of Prices and Productivity for Tradable and Non-tradable Goods”. Review of Income and Wealth 25: 413-427.
http://dx.doi.org/10.1111/j.1475-4991.1979.tb00116.x
Gregory, A. and Hansen, B. 1996. “Residual-based tests for cointegration in models with Regime Shifts.” Journal of Econometrics 70:99–126.
http://dx.doi.org/10.1016/0304-4076(69)41685-7
Gumede, V. 2000 “Import demand elasticities for South Africa: A cointegration analysis”. Journal for Studies in Economics and Econometrics, Vol. 24, pp. 21-37.
Harb, N. 2005. “Import demand in heterogeneous panel setting. Applied Economics, 37(20): 2407-2415.
http://dx.doi.org/10.1080/000368405002000345550
Harvey, S. and Sedegah, K. 2011. “Import demand in Ghana: Structure, behaviour and stability” AERC Research Paper 233
Hemphill, W.L. 1974. “The effects of foreign exchange receipts on imports of less developed countries”. IMF Staff Working Paper, 27: 637-677.
Ho, W. S. 2004. “Estimating Macao’s import demand functions”, Monetary Authority of Macao Working Paper No. 18
Hong, P. 1999. “Import elasticities revisited”. Discussion Paper No. 10, Department of Economic and Social Affairs, United Nations.
Kotan, Z. and Saygili, M. 1999. “Estimating an import function for Turkey”. The Central Bank of Turkey, Research Department Working Paper No. 9909.
Menyah, K. and Wolde-Rufael, Y. 2010. “Energy consumption, pollutant emissions and economic growth in South Africa”. Energy Economics, 32, 1374-1382.
http://dx.doi.org/10.1016/j.eneco.2010.08.002
Min, B.S., Mohammed, H.A. and Tang, T.C., 2002. “An analysis of South Korea’s import demand.” Journal of Asia Pacific Affairs 4: 1-17.
Mohammed, H. A. and Tang, T.C. 2000. “Aggregate imports and expenditure components in Malaysia: a cointegration and error correction analysis”. ASEAN Economic Bulletin 17:257-69.
http://dx.doi.org/10.1355/AE17-3B
Narayan, P. K. and Narayan, S. 2005. “An empirical analysis of Fiji’s import demand function”. Journal of Economic Studies 32(2):158-168.
http://dx.doi.org/10.1108/01443580510600931
Olayide, S.O. 1968. “Import Demand Model: An Econometric Analysis of Nigeria's Import Trade”. The Nigerian Journal of Economic and Social Studies 10(3): 303–319.
Omoke, P. O. 2012. “Aggregate Import Demand and Expenditure Components in Nigeria”. Economica 8(1).
Perron, P. 1989. “The great crash, the oil price shock and the unit root hypothesis”. Econometrica 57:1361-1401.
http://dx.doi.org/10.2307/1913712
Rambaldi, A. N. and H. E. Doran 1996. “Testing for granger non-causality in cointegration systems made easy,” Working Paper No.88. Department of Econometrics, University of New England.
Sachs, J. 1982. “The current account in the macroeconomic adjustment process”. The Scandinavian Journal of Economics, 84(2): 147-159.
http://dx.doi.org/10.2307/3439631
Senhadji, A. 1998. “Time-Series estimation of structural import demand equations: A cross- country analysis”. IMF Staff Papers, 45(2): 236-268.
http://dx.doi.org/10.2307/3867390
Sinha, D. 1997. “Determinants of import demand in Thailand”. International Economic Journal; 11(4) Winter 1997.
Tang and Nair, M. 2002. “A cointegration analysis of Malaysian import demand function: Reassessment from the bounds test”. Applied Economic Letters 9 (5): 293-296.
http://dx.doi.org/10.1080/13504850110073471
Tang, T. C. 2003. “An empirical analysis of China’s aggregate import demand function”. China Economic Review 12(2):142-63.
http://dx.doi.org/10.1016/S1043-951X(03)00021-X
Tang, T.C 2005. “Revisiting South Korea’s import demand behavior: A cointegration analysis”. Asian Economic Journal 19(1):21-50.
http://dx.doi.org/10.1111/j.1467-8381.2005.00203.x
Toda, H.Y. and Yamamoto, T. 1995. “Statistical inferences in vector autoregressions with possibly integrated processes”. Journal of Econometrics 66: 225-50.
http://dx.doi.org/10.1016/0304-4076(94)01616-8
Xu, X. 2002. “The dynamic-optimizing approach to import demand: A structural model. Economics Letters, 74(2): 265-270.
http://dx.doi.org/10.1016/S0165-1765(01)00538-9
Zivot, E. and D. Andrews, 1992. “Further evidence of great crash, the oil price shock and unit root hypothesis”. Journal of Business and Economic Statistics 10:251-270.
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Published
2014-07-11
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Shuaibu, M. I., & Fatai, B. O. (2014). On the Stability of Nigeria’s Import Demand: Do Endogenous Structural Breaks Matter?. Journal of Reviews on Global Economics, 3, 228–240. https://doi.org/10.6000/1929-7092.2014.03.18
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