Determinants of Nigeria’s Capital Goods Import Demand Elasticities
Keywords:
Import demand, elasticity, economic growth, exchange rate, trade
Abstract
Import demand elasticities are important for understanding the structure of any economy and for the forecasting of economic phenomena. Existing studies show that demand for imports depends on price, income and exchange rates. The present study aims to contribute to existing works on imports, but with emphasis on capital goods. The study is important because of the critical role of capital goods in development; every economy needs a lot of capital goods to power growth. Capital goods are durable goods used in further production of goods and services. The study, which used the Pooled Least Squares analytical technique and the simple log linear formulation of the import demand equation, found that Nigeria’s demand for capital goods was price inelastic. Accordingly, policy action, working through price manipulations, may not effectively influence import demand in the desired direction. Furthermore, Nigeria’s capital goods expenditure had not kept pace with her income growth performance. There was evidence that less was spent on capital goods as national income increased. Finally, it was found that exchange rate deterioration had little effect on capital goods import. In other words, the depreciation of the national currency did not appear to discourage the importation of capital goods.
References
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Volgel, A. and Wagner, J. (2008). Higher productivity in importing firms: self-selection, learning from importing or both? University of Luneburge, Working Paper Series.
Wacziarg, R. (2000). Measuring the dynamic gains from trade. Research Paper Series No. 1564, Graduate School of Business, Stanford University, September.
Ahmed, A. (1983). The problem of over-dependence of Nigerian economy on imports. In: Selected Speeches of Central Bank of Nigeria Governors and Notable Nigerians. University of Zambia; Lusaka. Retrieved 15 June 2008 from www.fiuc.org.
Ajayi, S.I. (1975). Econometric Analysis of Import Demand for Nigeria. Nogerian Journal of Economic and Social Studies, 17(3) Nov. 168 – 182.
Anusionwu, E.C. (1984). Estimate of income and price factors in Nigeria. The Asian Economic Review 1 & 2(XVII).
Bahmani-Oskooee, M. (1986). Determinants of international trade flows: The case of developing countries. Journal of Development Economics 20: 107-123.
Barro, R. and Sala-i-Martin, J. (1997). Technological diffusion, conversion and growth. Journal of Economic Growth 2(1): 1-2.
Boylan, T.A., Cuddy, M.P., and O’Muircheartaigh, C. (1980). The functional form of the aggregate import demand function. Journal of International Economics, 10.
Cruz, M. (2008). Can free trade guarantee gains from trade . World Institute for Development Economics Research, Uni ted Nations University, October 23.
Egwaikhide, F.O. (1999). Determinants of imports in Nigeria: A dynamic speculation. AERC Research paper 91, Nairobi, March.
Emran, M.S. and Shilpi, F. (2001). Foreign trade regimes and import demand function: Evidences from Sri Lanka. The World Bank Working Paper Series No. 10, DERG.
Frimpong, J.M. and Oteng-Abayie, E. F. (2006). Aggregate import demand and expenditure components in Ghana: An econometric analysis. MPRA Paper No.599, University Librar y of Munich, Germany.
Goldstein, M.S., Mohsin, K. and Officer, L.H. (1977). Alternative measures of relative prices in the demand for total imports. IMF Staff Papers, June.
Grossman, G. and Helpman, E. (1991). Innovation and Growth in the Global Economy. Cambridge MA: MIT Press.
Hansen, P. (1982). The nature of import-led growth: Some observations on Soviet, Polish, and Hungarian experience in the 1970s. journal of Comparative Economics, 6: 130 – 147.
Jong, P. (1999). Import elasticities revisited. DESA Discussion Paper Series, 10, September, 1 – 4 ST/ESA/1999/DP.10, Department of Economic and Social Affairs, the United Nations.
Houthakker, H.S. and Magee, S.P. (1969). Income and price elasticities in world trade. Review of Economics and Statistics 51: 111-125.
Johansen, L. and Juselius, F. (1990). Maximum Likelihood estimation and inference on cointegration with applications the demand for money. Oxford Bulletin of Economics and Statistics, 52(2): 169 – 210.
Kreinin, M.E. (1976). Price elasticities in international trade. Review of Economics and Statistics, 49:510 – 516.
Khan, M.S. (1974). Imports and exports demand in developing countries. IMF Staff Papers, November, 678 – 693.
Lee, J. (1994). Capital goods import and long run growth. NBER Working Paper No. 4725.
Lucas, R. (1988). On the mechanics of economic development. journal of Monetary Economics, 22: 3 – 42.
Meier, G. M. (1984). Trade as an engine of growth. In: G.M. Meier (ed.) Leading Issues in Economic Development. 489 – 509. Oxford; Oxford University Press.
Narayan, P.K. and Narayan, S. (2005). An empirical analysis of Fiji’s import demand function. Journal of Economic Studies, 32(2): 158 – 168.
Okongwu, C.S.P. (1984). The Nigerian Economy: Anatomy of Traumatized Economy with some Proposals for Stabilization. Lagos, Fourth Dimension.
Olayide, S. O. (1968). Import demand model: An econometric analysis of Nigeria’s Import trade. Nigerian Journal of Economics and Social Studies 10(3): 303 – 319.
Olopoenia, R.A. (1991). Fiscal response to oil wealth and balance of payment Performance in Nigeria, 1970 – 89. Report presented at the Economic Research.
Ozo – Eson, P.I. (1984). Determinants of import demand in Nigeria: A monetary approach. The Nigerian Journal of Economic and Social Studies, 26(1): 73 – 83.
Parikh, A. and Stirbu, C. (2004). Relationship between trade and liberalization, economic Growth and trade balance: An econometric investigation, Hamburg Institute of International Economics, Discussion Paper Series No. 26267.
Quah, D. and Rauch, J. (1990). Openness and the rate of economic growth. Mimco, Cambridge, MA, (MIT).
Rivera-Batiz, L. And Romer , P. (1991). Economic integration and endogenous growth. Quarterly Journal of Economics 106: 531-556.
Romer, P. (1986). Increasing returns and l ong-run growth. Journal of Political Economy 94: 100-02.
Roubini, P. and Sala-i-Martin, X. (1991). Financial development, the trade regime and Economic growth. (NBER, Cambridge) MA Working Paper No. 3876.
Smith, A. (1936). Wealth of Nations. Edited by C.J. Bullock. Vol. X. The Harvard Classics. New York: P.F. Collier & Son.
Thirlwall, A.P. (2003). Trade and the Balance of Payments and Exchange Rate Policy in Developing Countries. New York, McGraw.
Volgel, A. and Wagner, J. (2008). Higher productivity in importing firms: self-selection, learning from importing or both? University of Luneburge, Working Paper Series.
Wacziarg, R. (2000). Measuring the dynamic gains from trade. Research Paper Series No. 1564, Graduate School of Business, Stanford University, September.
Published
2016-03-01
Section
Articles
