IMPORTS UNDER FOREIGN EXCHANGE CONSTRAINTS IN NIGERIA: CO-INTEGRATION ANALYSIS

Abstract

This study emplos a structural econometric model ofaggregate imports which incor- porate exogenous prices to explain import behaviour in Nigeria relative to foreign exchange availability. Traditional models estimate import demand as a function ()/ relative prices (the real exchange rate), and income (gross domestic product), but omit changes inforeign exchange level. In the 198()'.I', Nigeria experienced declines inforeign lending and increased debt service costs. These tended to reduce foreign exchange availability and limited the import capacity of Nigeria. This same ap- proach Was used by Moran ( 1987) /01' the developing and the developed countries from 1970 - 1983. Three models were tested to determine the superiority 0/one over others. These models include- General Model, Traditional Model and Hemphill Model. Based on the f-test, the general import model performed better than the other two and this model was used to test comprehensively and analyze import behaviour in Nigeria. The general import model equation 12 was used to test import behaviour for Nigeria. The results obtained using model J2 suggest that although price and income effects are important in the analysis 0/ import behaviour in Nigeria, foreign exchange constraints also playa crucial role in determining import demand, as it strongly affects import volumes.