Econometric Revalidation of Nigeria’s Import Demand Behaviour: A Koyck’s Dynamic Analysis and the Policy Response
Authors: David Umoru, Efosa Osayamen A. Evbuomwan, Benedict Imimole
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This paper estimates import demand functions for Nigeria using yearly data for 2000 to 2017 on basis of dynamics of distributed lag model in line with first-order Koyck lag transformation. GLS estimator was utilized in two ways: Estimation without any restriction imposed on lag coefficients and estimation by restricting Koyck lag weights to satisfy erstwhile assumption of smoothness. Our chosen restriction was such that lag coefficients exponentially decline from initial impact to zero at a lag length of .For estimation without restrictions, probability values of Wald statistic were insignificant. As regards estimation with restrictions, our restrictions on lag coefficients were significant and as such our analysis of results was focussed on estimations with coefficient restrictions. The empirics upholds structural import equation as most well-behaved import function for predicting variation in Nigeria’s demand for importation with a mean lag of 1.088 years, median lag of 1.063 years and variance of lag distribution of about 2.271 years. In light of its low variance, it shows that impact of foreign reserves holding and import tariff reduction is spread over 2 years. Thus, consequent upon changes in foreign reserves holding and tariff reduction policy, 52.1 % changes in Nigeria’s demand for importation is completed in one year, implying somewhat rapid adjustment. Overall, our empirics denotes that Nigeria’s import demand behaviour are significantly responsive to foreign reserves holding, tariff reduction policy and final consumption expenditure. Nevertheless, lag distributions exhibit a sequence of lag coefficients that bounce around positive and negative numerals and so outlying (outliers) in a way not in conformity to economic theory. Hence, the lag distributions are unstable and so diverge as lag length escalates in the long-run. Consequently, with all estimated import functions, the policy response is oscillatory. This implies that response of import demand to government policy on importation is dynamically inconsistent. Such oscillation could be propelled by sensitivity of Nigeria’s demand for importation to fluctuating economic circumstances prompted by recent recessionary sequence and its associated economic disorder via reality of Nigerian business cycle given oil price shocks and its socio-economic vulnerability effect on the nation. So, while Nigerian government prudently implement expenditure-reducing policies, there is need to sustain a balance between protection of import substituting industries for the drive to enhancing indigenous production and maintaining a positive payment balance by adequate international reserves through ample acquisition of official remittances to strengthen the country’s import funding when the demand to import for national development becomes vital.