Determinant of Import Demand of Ethiopia: Co integration Analysis.
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Date
2008-06
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A.A.U
Abstract
In this paper the determinant of Ethiopia aggregate demand is studies using yearly data in
the period 197112 to 200617. The main objective of the paper is to identify the main
determinant of Ethiopia import and the relative elasticity of explanatory variables. The
augmented dickey fuller and Phillips Peron test is used to test the unit root test. Johansen
co integration and error correction model is employed on yearly data in order to approve
the existence of long run relationship and to identify the long run and short run
relationship.
The main finding is that, in the long run Ethiopia import is mainly affected by real
effective exchange rate, real gross domestic product and relative price. It shows elastic
import demand with respect to explanatory variables except relative price. The sign of
real effective exchange rate is unexpected in the long run. The short run adjustment
coefficient is identified and has a correct negative sign; however most of the coefficients
of short run variables are statistically insignificant. The implication of the finding is that,
ineffectiveness exchange rate policy in the long run, effectiveness of pricing policy and
difficulty of substituting imported goods by domestic product.
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Keywords
Demand of Ethiopia, Ethiopia