NAME:                           DAVID
BABATUNDE SULE

MATRIC NUMBER:        179930

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TOPIC:                           ORIGIN
SPECIFIC DETERMINANTS OF IMPORT

Chapter one: study structure

1.1        
Statement
of the Problem

In
2008 the global financial crisis hit the world, described as the worst crisis
since the great depression. It is fair to say the financial crisis started from
the united states of America where there was an increase in mortgage loans
which people would later be unable to pay causing banks and mortgage companies
to suffer significant loss from these defaults, it was also in the us where
house prices firsts started to fall causing a negative wealth effect and a
resulting reduction in spending. This crisis would then be carried on the back
of the global stock market, the links between the banking sector and trade
where other countries imported the crisis. It follows as changes in one
country’s output levels will affect income and aggregate demand of its trading
partners, reducing aggregate demand with decrease in available imports pushing
the economy into recession especially if these imports are made up mainly of
investment or capacity creating goods. This recession according to Blanchard
and Johnson (2013) is worsened if all the trading partners waiting on each
other to stimulate their individual economy and let the spill over stimulate
the others.

This
international transmission of domestic disturbances where import demand
elasticity’s which is a crucial link between economies; and the degree to which
the external balance constraint affects a country’s growth is not the only
policy implication for an investigation of the origin specific determinants of
import another important issue is dumping which according to the National
Academy of Sciences is the “Dumping is the export of products at less than ‘normal
value,’ often defined as the price at which those products are sold in the home
market” leading to the adoption of anti-dumping policies by different countries
including Nigeria which according to www.vanguardngr.com (2018) an
online newspaper outlet has signed an agreement with King and Spalding, LLP
Geneva, a Swiss law firm expected to support the drafting of Nigeria’s trade
remedy law and prepare a legal brief on the rationale and requirements for the
legislation, which will effectively stop dumping on the Nigerian market.
Although some observers call for the eradication of such anti-dumping policies
with claims that it increases efficiency and maximizes the gains from trade
others argue that dumping itself remains a “problem in international trade” as
described by Jacob Viner in a seminal study he conducted in 1923 on the
subject. And as such requires continued regulation especially for countries
with relatively open economies. Dumping over the short run allows firms in the
origin markets enjoy lower average cost by allowing them operate at higher
levels of capacity utilization but firms in the destination markets if the
origin markets are closed to them, like in the case that their products don’t
match the markets demand patterns and they aren’t able to find demand for their
goods as is the case of trade between most African countries and European or
American economies where we find that we have nothing to sell to them most
times conversely dumping over longer runs works to discourage investment in the
destination economies for the origin economies because the risks and returns
attached to investment are higher and lower respectively in the destination
economies than in the origin economies. The combinations of these effects work
to erode industries in the destination economies even till the point that they
completely disappear for reasons unrelated to their competitiveness. In part,
this led to the adoption of economic reform programmes expected to affect
imports, in part to restore external balance. According to Moran (1989),
however, this policy decision reveals the role played by foreign exchange
availability in the growth process and is positively harmful to investment and
output in developing countries. Perhaps, this is a demonstration of the
reliance on imports for domestic production making an investigation of the
origin specific determinants of imports all the more important to identified
the markets upon which the Nigerian economy is most dependent and changes in
which have the most impact on the Nigerian economy. As a developing economy,
Nigeria has had her own share of high nominal value of aggregate import over
the years. This has been the order since independence in 1960, and has been
made worse by the oil booms of the 1970s that gave rise to an increase in
average income, and subsequently increase in the demand for import.

Available
evidence generally suggests that most developing countries such as Nigeria
registered a persistent decline in their foreign exchange earnings from the
early 1980s. This is attributed largely to the collapse of commodity prices in
the world market as a result of increased import. Thus, it was not surprising
that the collapse of commodity export prices in the early 1980s engendered
fiscal crises in most African countries, as reflected in their huge budget
deficits.

1.2        
Research
Questions and obejectives of the study

The
study will address the following research questions:

1.    Is
there any significant impact of the determinants of import demand function for
imports in Nigeria from its major trading partners?

2.    Do
long-run relationships exist between the determinants of import demand function
in Nigeria?

In
the attempt to provide answers to these questions, the broad objective of the
study will be to investigate the determinants of Nigeria’s import demand based
on the origins of these imports as well as ascertain the variables that
determine Nigeria’s import demand. The specific objective includes;

1.    Identify
variables that determine the demand for imports in Nigeria based on the sources
of these imports.

2.    Analyze
the behaviour of imports in Nigeria based on their origin.

3.    Estimate
the import demand function for each of its trading partners.

4.    Determine
policies for Nigeria to reduce its chronic trade deficit and dependency on
other economies of the world.

1.3        
Hypothesis
of the Study

·      H0:
There is no difference in the factors that determine import demand based on its
country of origin.

·      H0:
There is a negative relationship between gross domestic product and imports
from Nigeria’s largest partners.

·      H0:
There is positive relationship between exchange rate and demand for imports in
all cases.

·      H0There
is a positive relationship between CPI and demand for imports in all cases.

1.4        
Methodology

This
research will analyze the behaviour of the aggregate import demand function for
Nigeria using time series techniques, descriptive analysis methodology will be
used, and the collected data will be analyzed by SPSS & Eviews. The study
covers the period 1991-2015. The data at 2000 constant prices are obtained from
the national bureau of Statistics all the data for the three independent
variables and the dependent variables from the OECD.

1.4.1   
Data
collection and Variables

1.4.1.1       Secondary resources: the
researcher has utilized the relevant literature and publications related to the
subject of the research. (Reports, Thesis, Conference reports, Governmental,
Newspapers, Journals, & Internet).

1.4.1.2       Variables:

1.4.1.2.1  
Dependent
Variables

Import demand for each of
Nigeria’s major trading partners.

1.4.1.2.2  
Independent
Variables

Gross domestic product (GDP).

Exchange Rate(ER). (Naira on
Dollar)

Consumer Price Index (CPI).

 

1.5        
Significance
of Study

Since
import is all about increasing the availability of needed goods and services of
any country. But in a country like Nigeria where import as advantageous as it
is could be comes with negative effects like dumping. This work will be of
great importance to the general public, the government and its agencies.

Also,
it will be of great importance to the ministry of foreign affairs, ministry of
finance as well as schools. Above all, it will be a foundation for the
economist, students and researchers who have interest on import demand and
ranking Nigeria’s major trading partners on a basis of profitability of the
relationship of the relationship.

1.6        
Scope
and limitation of the study

This
research will empirically evaluate the import demand function on Nigerian
economy and its main trading partners for the period of (1991 — 2015). The
researcher may encounter a number of constraints in the course of this work to
include; data sourcing or data inconsistency due to poor nature of information
management in Nigeria. Other constraints are; time factor, financial
constraints and hosts of other constraints that prevent the researcher to
present a better work than this.

 

 

References

·      Olivier
Blanchard and David R. Johnson – macroeconomics 2013 6th edition p.
407-408.

·      International
Friction and Cooperation in High-Technology Development and Trade: Papers and
Proceedings. – DUMPING: STILL A PROBLEM IN INTERNATIONAL TRADE

·      https://www.vanguardngr.com/2018/01/nigeria-signs-legal-agreement-tackle-dumping-products/
– Nigeria
signs legal agreement to tackle dumping of products

·      Christian
Moran – Imports under a foreign exchange constraint, 1989

 

 

Chapter two: Literature review

While
there has been an exhaustive list of studies that have come before throughout
the world to explain the topic of the import demand function. Even in Nigeria
where a notable number of academicians have attempted to tackle the problem.
There to the best of the researcher’s knowledge still remains a vacuum in
studying the matter specifically based on the origins of these imports and he
could only find studies on import as broad aggregates.

However
this research will address the available literature as a group of Nigerian,
African and international studies that provide context for the work in
chronological order

2.1     Nigerian
studies:

2.1.1  (Ozo-Eson
& Peter 1984). “(Determinants of import demand in Nigeria: a monetary
approach)”.

In
this paper, a straightforward monetarist model of import demand in Nigeria is
created and tried observationally. Based on the outcomes, the significant
finding is that disequilibrium in the money market assumes a noteworthy part in
deciding the level of import demand. In light of this discovering, it is
exhibited that before import demand models that don’t account for money will
tend to deliver one-sided appraisals of the Keynesian elasticity of import
demand. Finally, the suitable setting for policy formulation and analysis is
inferred. The appropriate policy response is that the suitable approach
reaction to expanding import demand is the reduction in domestic money supply.

2.1.2  (Nyatepe-Coo, Akorlie A., 2006). “(Dutch Disease, government policy and
import demand in Nigeria)”.

The
impacts of sectoral changes and government approaches on import demand in
Nigeria are examined, with regards to the oil shocks of the 1980s. A two-equation
model is evaluated to determine real import demand and the real exchange rate.
The outcomes show that import demand expanded altogether in light of the blast
induced crush on the agricultural sector. Besides, by inducing and supporting
real exchange rate overvaluation, expansionary government policy added to
higher import demand, even after the fall in oil costs.

2.1.3  (M. Adetunji Babatunde & Festus O. Egwaikhide, 2010). “(Explaining Nigeria’s
import demand behaviour: a bound testing approach, International Journal of
Development Issues, Vol. 9 Issue: 2, pp.167-187).”

This paper presents an empirical analysis of the aggregated import
demand behavior for Nigeria using annual data between 1980 and 2006 and the
bounds test in estimating the long run relationship between imports and its
determinants.

The test results show that imports, income and relative prices are
cointegrated. The estimated long?run elasticities of import demand with respect
to income and relative prices are 2.48 and ?0.133, respectively. These results
suggest that the Marshall?Lerner conditions are not satisfied for Nigeria.

2.1.4  (Adeolu O.
Adewuyi, 2016). “(Determinants of import demand for
non-renewable energy (petroleum) products: Empirical evidence from Nigeria).”

This study assessed determinants of import
demand for refined oil based goods in Nigeria for the period 1984– 2013. It
utilized the autoregressive appropriated slack (ARDL) limits test cointegration
technique and dissected both long-run and short-run determinants of import
demand for aggregate and particular oil based commodities.

Over the long run, total and sectoral incomes
are huge determinants of import of refined kerosene. Further, real effective
exchange rate (REER), aggregate income (GDP), manufacturing sector income, domestic
energy production (DEP) and population growth rate (PGR) are drivers of import
of refined motor spirit. Moreover, REER, DEP and manufacturing sector’s salary
are propellers of import of refined distillate fuel. Additionally, REER and
aggregate output of oil based goods are significant drivers of aggregate import
of refined oil based commodities.

Short-run come about demonstrate that past
period GDP, PGR and manufacturing and services sectors’ incomes are
determinants of import demand for refined kerosene. Additionally, REER, GDP,
past PGR and manufacturing sector salary apply huge impacts on the import of
refined motor spirit. Further, critical impacts of REER, DEP, past PGR,
residential yield of the item and assembling and administration divisions’
earnings on the import demand for distillate fuel were found.

2.2     African studies:

2.2.1  (Fosu and Magnus, 2008),
“(Aggregate Import Demand and Expenditure Components in Ghana)”.

The conduct of Ghana’s imports amid the period
1970-2002 was contemplated utilizing disaggregated expenditure parts of
aggregate national income. It utilized recently created bounds testing approach
to co-integration and assessed an error correction model to isolate the
short-and long-run components of the import demand relationship. The
examination uncovered inelastic import demand for all the expenditure segments
and relative cost. In this investigation it has utilized the ARDL bounds
testing approach to co-integration to inspect the connection between
expenditure segments, relative cost and total import demand in Ghana. It
discovered long-run connections relation among the variables and utilized it to
assess both long and short run disaggregated import demand display for Ghana.

The examination finds that inelastic and
positive relationship exist between the three expenditure components and total
import demand. Relative cost is likewise inelastic however adversely affect
total demand. The short run outcomes fits the present circumstance in Ghana and
so far as that is concerned numerous African nations as these nations are
unmistakably exceptionally dependent on imports particularly for consumption
and investment goods to make up for short falls in local production.

2.2.2  (Emmanuel Ziramba, 2010).
“(Price and income elasticities of crude oil import demand in South Africa: A
cointegration analysis)”.

This paper looks at the demand for imported crude
oil in South Africa as a component of real income and the cost of unrefined
petroleum over the period 1980– 2006. The Johansen co-integration multivariate
examination was conducted to determine the long-run income and price
flexibilities. A unique long-run cointegration relationship exists between
crude oil imports and the explanatory variables. The short-run dynamics are
assessed by indicating a general error correction model. The evaluated long-run
price and income elasticities of ?0.147 and 0.429 suggests that import demand
for crude oil is price and income inelastic. There is additionally confirmation
of unidirectional long-run causality running from real GDP to unrefined
petroleum imports.

2.2.3  (Constant, 2010), “(An
Econometric Estimation of Import Demand Function for Cote D’Ivoire)”.

This investigation evaluated the import demand
work for Cote d’Ivoire By utilizing the as of late created co-integration
procedure the bounds testing way to deal with test the long run connection
between imports, relative import prices, final utilization expenditure,
investment expenditure and export expenditure utilizing yearly information for
the period 1970 – 2007.We discover proof of a co-integration relationship among
the variabless in the import demand function when import demand, final
utilization expenditure and relative prices are the dependent variable. However
in light of the model determinations we used import demand as dependent
variable. This enables us to analyze the long run elasticities yet additionally
the short run of Cote d’Ivoire import demand for policy implications. We find
that an inelastic and positive relationship exist between the final utilization
expenditure, the expenditure on investment and goods and the expenditure on
exports. Relative price is likewise inelastic however contrarily affect total
demand suggesting that the import demand is insensitive to increment in local
levels. Subsequently the Cote d’Ivoire policymakers need to bargain intimately
with the aggressiveness of the relative prices to boost growth and development
of the local industries

2.2.4
(Simon Harvey & Kordzo Sedegah, 2011).
“(Import Demand in Ghana:Structure Behaviour and Stability)”.

This examination investigates the structure of, and
model demand for imports into Ghana utilizing time arrangement information from
1967 to 2004. Likewise, it evaluates the long-run and short-run elasticities of
total imports and their parts, and decides if the import demand function has
moved amid the period under thought because of exchange progression.
Cointegration and error correction models are utilized to appraise parsimonious
models for total imports and three different classes. The outcomes demonstrate
that domestic income, foreign exchange reserves and liberalization all assume
huge parts both in the short-run and long-run import demand levels in Ghana. We
likewise find that there is general parameter soundness in the import demand
functions over the examination time frame. In this manner, policy makers who go
for lessening imports to redress adjust balance of payments irregular
characteristics over the long haul should concentrate their endeavors on
approaches that will build the per capita income at the macroeconomic level and
execute strategies that will guarantee an even appropriation of per capita
income to decrease poverty.

2.2.5  (N. Emmanuel Tambi, 1998) “(Trade
liberalization effects on commodity imports in Cameroon, Journal of Economic
Studies, Vol. 25 Issue: 3, pp.193-202)”.

The speculations that an expansion in relative price
elasticities isn’t related with expanded import substitution and that an
expansion in income and foreign exchange elasticities isn’t related with a more
noteworthy level of “openness” of the Cameroon economy are explored
utilizing cointegration and error correction modelling. Disaggregation of
aggregate imports into raw materials, consumer, intermediate and capital goods
demonstrates that long-run relative price elasticities of import demand are more
prominent than short-run esteems, being above unity for raw materials and
consumer products; subsequently prompting dismissal of the primary speculation
for these classifications of imports. Imports are income flexible for capital
and intermediate goods and outside trade inelastic for all classes of import,
inferring that the Cameroon economy has been less open to trade in general.

2.3     International studies

 

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