The role of exchange rate and relative import price on sawnwood import demand in Africa: Evidence from modified heterogeneous panel data methods

Abstract

This study investigates the role of exchange rate and relative import price in sawnwood import demand in a panel of 30 African countries during 1985–2016 using the modified heterogeneous panel data techniques and the modified dynamic common correlated effect method. In the sawnwood import demand modelling and analysis, we controlled for the effects of structural changes and common shocks arising from increased economic and financial integration among countries which may affect our findings. Based on alternative estimators, the regression results reveal that real domestic income, real effective exchange rate, sawnwood relative import price and external reserves are significant determinants of sawnwood import demand in the long-run. The results show that the sawnwood import demand was fairly income inelastic, but, highly inelastic to changes in real effective exchange rate, real external reserves and relative sawnwood import price. Also, real effective exchange rate and sawnwood relative import price engender asymmetric impact on sawnwood import demand in Africa. A disaggregate analysis reveals variations of asymmetric impacts across countries. Some policy implications are drawn for managing the balance of payments problem and pollution associated with sawnwood consumption and for industrialization and social welfare.