A Cointegration Analysis of South African Aggregate Import Demand Function: Assessment from Bounds Testing

Abstract

This paper empirically analyses the aggregated import demand behaviour for South Africa using annual data for the period 1970 to 2005. Given the small sample size, we use the unrestricted error correction model (UECM) based bounds test to investigate cointegration. The primary objective of the paper is to derive long-run price and income elasticities that can be used to analyze policy. The result of a bounds test (Pesaran, et al., 2001) indicates that the volume of imports, relative price and real income (gross domestic product) are cointegrated. The estimated long-run income and relative price elasticities are 2, 04 and -1, 43 respectively. These results have important policy implications.