Empirical Test of the Relationship Between Import Substitution and Trade Performance in Zimbabwe

Abstract

The study on trade performance and import substitution assumes that there is both short run and long run relationship between export growth and the trade policy instruments. Trade performance in this research is represented by the movements in the net exports (trade gap) for the period of 1980-2009, and trade restriction is captured in import value index. The study uses vector error correction model for the analysis of multivariate time series. The main findings from the study, affirm that a set of variables have a long run relationship with the trade performance in Zimbabwe. The results also indicate that both short run and long run depreciation in the exchange rate encourages exports and discourages imports. Trade performance is negatively related to trade restriction as indicated in the study.

Keywords: Import substitution, trade performance, vector error correction model, multivariate time series