An Import Demand Function for Long Grains (Indica) Rice for Saudi Arabia: A Vector Error Correction Model (VECM)

Abstract

A vector error correction model (VECM) was utilized to estimate an import demand function for indica rice for Saudi Arabia using time series data spanning the period 1983 – 2018. Results established a long run relationship between import demand quantity, import prices, per capita income, population, and crop index. Import demand quantity was found to adjust to restore long term equilibrium level significantly fast, as full adjustment would be attained within two years. Short run demand elasticities with respect to price and income confirmed that rice is a necessary normal good. The rather low income elasticity suggests that at higher incomes consumers would probably respond by shifting to more expensive rice (basmati) varieties. Positive population shocks were found to have a maintained long run negative impact on imports which reflects and confirms dietary shifts away from traditional rice dishes in Saudi Arabia.