Error correction, co-integration and import demand function for Nigeria

Abstract

The objective of this study is to determine empirically Import Demand equation in Nigeria using Error Correction and Cointegration techniques. All the variables employed in this study were found stationary at first difference using Augmented Dickey-Fuller (ADF) and Phillip-Perron (PP) unit root test. Empirical evidence from Johansen's multivariate framework suggests that the variables employed are not cointegrated in Nigeria data. This caused the null hypothesis of the presence of a cointegrating vector to be rejected, indicating non existence of a long-run relationship among the variables. Furthermore, the empirical results show that real GDP and Relative price as components of Import demand function positively affect the volume of Import (in Nigeria) in the shortrun. The estimates are statistically significant even though the results from cointegration analysis did not provide enough support for the existence of a long run relationship.

Keywords: Error correction, Import demand, Nigeria, JEL Classification, C32,F14