The determinants of import demand in South Africa: An empirical investigation

Abstract

This study investigates the determinants of import demand in South Africa from 1985 to 2015, using the autoregressive distributed-lag estimation approach. Unlike some previous studies that used a single model, the study uses four models, incorporating both the aggregate and disaggregated import demand. The study employs exports of goods and services, gross national income, investment spending, relative import price, consumer spending, government spending, and a dummy for trade liberalisation policy as independent variables. The empirical results suggest that the elasticity of import demand varies for each of these variables and depends on the import category used as a dependant variable. The long-run findings show that aggregate import demand is positively determined by trade liberalisation policy, investment spending, and gross national income. Import demand for consumer goods and import demand for capital goods appear to be positively associated with gross national income and trade liberalisation policy, while import demand for intermediate goods is positively determined by trade liberalisation policy. In the short run, the results suggest that aggregate import demand is positively determined by gross national income, investment spending, and consumer spending, but negatively determined by government spending. Import demand for consumer goods is positively associated with gross national income and trade liberalisation policy, while import demand for intermediate goods is positively determined by investment spending, trade liberalisation policy and consumer goods, but negatively determined by exports of goods and services and relative import price. Finally, import demand for capital goods is found to be positively and negatively determined by gross national income and investment spending, respectively.