Import demand in Ghana: Structure, behaviour and stability

Abstract

This study analyses the structure of, and model demand for imports into Ghana using time series data from 1967 to 2004. Also, it assesses the long-run and short-run elasticities of aggregate imports and their components, and determines whether the import demand function has shifted during the period under consideration as a result of trade liberalization. Cointegration and error correction models are used to estimate parsimonious models for aggregate imports and three other categories. The results indicate that domestic income, foreign exchange reserves and trade liberalization all play significant roles both in the short-run and long-run import demand levels in Ghana. We also find that there is general parameter stability in the import demand functions over the study period. Therefore, trade policy authorities who aim at reducing imports to correct balance-of-payments imbalances in the long run should focus their efforts on policies that will increase the per capita income at the macroeconomic level and implement policies that will ensure an even distribution of per capita income to reduce poverty. vi