Import as a Function of Income in Nigeria from 1970-2016

Abstract

This research work aims at investigating import as a function of income in Nigerian economy between 1980 and 2014. The econometric techniques used for this thesis are Unit Root Tests, Cointegration, Vector Error Correction, and Granger Causality Methods. These techniques were consistent with seven of the previous studies in the literature review, and the other seven previous studies used other econometric techniques in their papers. Annual time series data was taken from the World Bank Database. The regression model was in logarithms transformation form purposely to linearize the model, to reduce the impact of outliers and thus to avoid spurious regression result. The theoretical expectation is that there is a positive relationship between the IMPORTS and GNI in Nigeria that is the higher is the GNI, the higher will be the consumption and thus the import. One Other variable was introduced to independent variable and the other variable is Real Exchange Rate (REXRt).  LN(IMPORTSt), LN(GNIt) and LN(REXRt) have Unit Roots problem at level but were stationary at first difference statistics. Furthermore, Trace and Max. Eigen Value Test indicates one cointegrating equations at 5% significance level. This thesis shows that there is a long-run relationship between the Imports and the Income in Nigeria between 1980 and 2014. The long-run shows positive relationship while the short-run shows no significant relationship.

Keywords: Stationary, Cointegration, VECM, Granger Causality, Import, Income