An empirical estimation of aggregate import demand under foreign exchange constraints: Evidence from Ethiopia

This study employs the estimation of aggregate import demand under foreign exchange constraints in Ethiopia, utilizing annual time series data from 1985 to 2021. The regression analysis is conducted using the nonlinear autoregressive distributed lag (NARDL) approach to investigate the impact of the...

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Bibliographic Details
Published in:PloS one 2024-06, Vol.19 (6), p.e0303587
Main Authors: Ali, Mohammed Yimam, Yimer, Ahmed Mohammed, Dessie, Tsadiku Setegn
Format: Article
Language:English
Subjects:
Analysis
Cash flow
Commerce
Consumption
Demand
Developing countries
Economic growth
Employment
Estimation
Ethiopia
Expenditures
Exports
Foreign exchange
Foreign exchange markets
Foreign exchange rates
Foreign exchange reserves
GDP
Gross Domestic Product
Humans
Imports
Income
International trade
LDCs
Liberalization
Models, Economic
Monetary policy
Money supply
People and Places
Personal income
Physical Sciences
Policy making
Price elasticity
Prices
Regression Analysis
Social Sciences
Special drawing rights
Statistical analysis
Trade policy
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Summary:This study employs the estimation of aggregate import demand under foreign exchange constraints in Ethiopia, utilizing annual time series data from 1985 to 2021. The regression analysis is conducted using the nonlinear autoregressive distributed lag (NARDL) approach to investigate the impact of the accumulation of foreign exchange reserves on aggregate import demand in Ethiopia. The estimation results indicate that, in the long run, all the variables, i.e., foreign exchange reserve, the relative price of imports, real income, volatility of the exchange rate, money supply, and policy dummy, significantly determine the behavior of aggregate imports over the reference period. The findings also show that, in the long run, foreign exchange reserve, real income, and the exchange rate positively affect the demand for imports in Ethiopia. Meanwhile, a positive shock in relative import price and money supply negatively affects import demand in Ethiopia. Thus, the price and income elasticity estimates have correct signs and are statistically significant. The variables included in the model strongly affect import demand in both the short and long run. Finally, policymakers aiming to significantly influence import demand should focus on effective management of these variables, as they strongly affect import volume.
ISSN:1932-6203
1932-6203
DOI:10.1371/journal.pone.0303587