An aggregate import demand function for Nigeria

Abstract

Being a small open economy, Nigeria requires imports, such as capital and intermediate goods to grow and develop. This paper uses a time series econometric technique, precisely the error-correction mechanism, to identify the factors responsible for import demand. The results show that imports, income and relative prices are all cointegrated. The econometric estimates of the import-demand function for Nigeria suggests that import demand is largely determined by real income (GDP) and less sensitive to relative prices. In addition, the structural policy shift to liberalization since 1986 is found to have little but significant impact on import demand. Development of local industries with low import content is suggested given that exchange rate policy and devaluation generally are likely to be ineffective in influencing import demand of Nigeria.