Modelling Stability in the Demand for Sea Transport in Nigeria’s Freight Market: A Cointegration Analysis

Abstract

Using time series data on seaborne trade, government public expenditure and Gross Domestic Product (GDP), we investigated the existence of long run equilibrium relationship among these variables in Nigeria’s shipping market. The object was to determine stability in demand for shipping services while relying on the assumption that volume of seaborne trade is a proxy for sea transport demand. We subjected these time series variables to unit roots tests and found they were not stationary at level but at first difference i.e. they are integrated of the order I(1). However, to assess the underlying relationship between the variables, seaborne trade was separately regressed against government expenditure and GDP. Analysis of the regression residuals confirms the existence of cointegrating relationship between seaborne trade and GDP. Much against our a priori expectation, it was also found that no such relationship exists between seaborne trade and government expenditure. In addition, Granger causality tests also showed that seaborne trade ‘granger cause’ GDP and not vice versa. Thus, the empirical evidence from our study indicates that GDP stabilizing policies are a pre-condition to maintaining stability in the freight market for shipping services in Nigeria.

Keywords: shipping demand, freight market, seaborne trade, stability, cointegration.