Analysing the determinants of import demand: evidence from three selected African countries

Abstract

This study examined the determinants of aggregate and disaggregate import demand in South Africa, Ghana and Tanzania over the period from 1985 to 2015. Although numerous studies have been carried out in this subject, the majority of the studies have only examined the determinants of aggregate import demand, and very few studies have examined the determinants of import demand at a disaggregate level. Using the ARDL model, this study found that, on the whole, import demand in Model 1 is positively associated with investment spending, consumer spending and relative import price, but negatively associated with government spending in South Africa. In Ghana, import demand was found to be positively associated with consumer spending and exports of goods and services, but negatively associated with foreign exchange reserves. The finding revealed that in Tanzania, import demand is positively associated with investment spending, and exports of goods and services, but negatively associated with trade liberalisation. For Model2, import demand was found to be positively associated with trade liberalisation and foreign exchange reserves only in the long run and short run, respectively. In Ghana, the study found that import demand is positively associated with consumer spending, but negatively associated with relative import price. In Tanzania, import demand was found to be positively associated with foreign exchange reserves and consumer spending, but negatively associated with trade liberalisation. For Model 3, the study found that import demand is positively associated with government spending, consumer spending and trade liberalisation, but negatively associated with relative import price in South Africa. In Ghana, import demand is positively associated with investment spending and government spending, but negatively associated trade liberalisation in Tanzania. For Model 4, import demand is found to be negatively associated with foreign exchange reserves in South Africa. For Ghana, import demand is negatively associated with relative import price in the short run, but positively associated with exports of goods and services in the long run. In Tanzania, the study found that import demand is positively associated with exports of goods and services. Based on these findings, policymakers should pursue policies that stimulate import substitution and promote exports