An Estimation of the Impact of GEAR and NEPAD on South Africa's Disaggregated Import Demand Function with Nigeria

Abstract

This paper estimates South Africa’s disaggregated import demand function with Nigeria from 1992 to 2010 utilizing the bounds testing approach to co-integration and the unrestricted error-correction model. We further estimate South Africa’s short-run and long-run import elasticities. Our results indicate a long run co-integrated relationship among the variables. However, not all the long-run elasticities display theoretically expected signs; neither are they all significant. While consumption and exports affect imports positively, investment affects it negatively. Real foreign reserves and volatility yield expected signs, but contrary to theoretical expectations, relative price is positive and highly elastic. In the short run almost all the expected elasticity coefficient signs are met and they are all statistically significant. Our study further discloses that South Africa’s commitment to increasing intra-African trade through its GEAR and NEPAD policies applies negatively to Nigeria, contrary to our hypothesis. We argue that appropriate public policy at the regional level is necessary to effectively increase trade with Nigeria, given South Africa’s reliance on oil imports for which Nigeria is its largest supplier.

Keywords: South Africa, Nigeria, disaggregated import demand, cointegration, GEAR, NEPAD

JEL Classification: F14, F31