The determinants of aggregate and disaggregated import demand in Ghana

Abstract

This paper examines the determinants of both aggregate and disaggregated import demand in the case of Ghana for the period from 1985 to 2015. The study employed the newly developed autoregressive distributed lag (ARDL) bounds testing approach. The explanatory variables employed include gross national income, exports of goods and services, consumer spending, government spending, investment spending, relative import price and trade liberalisation policy. The study finds that in the long run, aggregate import demand is positively determined by exports of goods and services and consumer spending. However, it was found to be negatively determined by relative import price, trade liberalisation policy and government spending. The results further confirm that gross national income, exports of goods and services and consumer spending are positive long-run and short-run determinants of import demand for consumer goods. It is found that in the long run, import demand for intermediate goods is positively determined by government spending and consumer spending, but negatively determined by exports of goods and services. Import demand for capital goods is found to be positively determined by gross national income and exports of goods and services, but negatively determined by investment spending in the long run. The short-run findings suggest that aggregate import demand is positively affected by exports of goods and services, investment spending and consumer spending, but negatively affected by relative import price and trade liberalisation policy. Import demand for consumer goods is positively influenced by consumer spending. Finally, import demand for intermediate goods is found to be positively determined by investment spending, government spending and consumer spending, while import demand for capital goods is positively associated with exports of goods and services and investment spending in the previous period, but negatively associated with previous period gross national income, investment spending and government spending.