TRADE LIBERALIZATION AND IMPORT DEMAND FOR RICE IN NIGERIA: A DYNAMIC MODELLING

Abstract

The study examined the effects of various trade policy instruments such as tariff, import restrictions, outright ban on rice import and other determinants on the import demand for rice in Nigeria between 1960 and 2007. Adopting a dynamic modeling approach, the unit root test of the series used in the model showed that they are all integrated of order one . Result of the long run equilibrium analysis showed that there is a long run relationship among the variables included in the model as the unit root test of the residual generated from the analysis was stationary at the level. Also, in the long run equilibrium model, three of the variables; exchange rate, per capita income and local output of rice were statistically significant at alpha 0.05 and all affected rice import demand positively. The short run dynamic model (ECM) result further confirmed the significance of per capita income and local output as major positive determinants of rice import in Nigeria. The significance of the coefficient of the error correction term confirmed the appropriateness of the error correction approach which also showed that ignoring the long run relationship is detrimental. The speed of adjustment measured by the coefficient of the error term indicated 99% instability in the growth rate of rice import in Nigeria during the period under study. Though the responsiveness of import demand for rice was particularly elastic with respect to exchange rate and per capita income, the most effective policy variable that can be focused on in the short run is the local output of the commodity. Thus, at primary production level, efforts should include subsidies of various form at various levels targeted at rice farmers while at secondary production level, efforts should include providing an enabling environment for private sector to invest in rice processing.