Imports Under Exchange Constraints in Nigeria: A Co-integration Analysis

Abstract

This study implements a structural econometric model of aggregate imports which incorporate exogenous prices to explain import behaviour in Nigeria relative to foreign exchange availability. Traditional models estimate import demand as a function of relative prices (the real exchange rate), and income (gross domestic product), but omit changes in foreign exchange level. In the 1980's, Nigeria experienced declines in foreign lending and increased debt service costs. These tended to reduce foreign exchange availability and limited the import capacity of Nigeria. This same approach was used by Moran ( 1987 ) for the developing and the developed countries from 1970 – 1983. Three models were tested to determine the superiority of one over others. These models include- General Model, Traditional Model and Hemphill Model. Based on the f-test, the general import model performed better than the other two and this model was used to test comprehensively and analyze import behaviour in Nigeria. The general import model equation 12 was used to test import behaviour for Nigeria. The results obtained using model 12 suggest that although price and income effects are important in the analysis of import behaviour in Nigeria, foreign exchange constraints also play a crucial role in determining import demand, as it strongly affects import volumes.

Ghana Journal of Development Studies Vol. 4 (21) 2007: pp. 102-116