Title: Empirical investigation of import-demand function of Saudi Arabia

Authors: Emmanuel Okey Ntui

Addresses: College of Business Administration, Prince Mohammad Bin Fahd University, Saudi Arabia

Abstract: This research paper investigates the real import-demand function for Saudi Arabia using Johansen's co-integration method. The result shows that there is a short and long-run equilibrium relationship between real imports and macroeconomic variables. In the short run, this study finds a significant relationship between real imports and income, foreign exchange rates and foreign exchange reserves; real income was found to be inelastic in respect of all the variables in the short run. In the long run, real imports are found to be elastic with respect to income and foreign exchange reserves and inelastic with respect to foreign exchange rates. The evidence suggests that appreciation or devaluation of the local currency may not give desirable results for the economy as far as controlling the import volume is concerned. The diversification of export base and less reliance on foreign inputs would be a better option to avoid possible trade deficits in the future.

Keywords: real imports; real income; GDP; gross domestic product; foreign exchange rates; foreign exchange reserves; Johansen; cointegration methodology; Saudi Arabia; import demand.

DOI: 10.1504/JGBA.2012.048122

Journal for Global Business Advancement, 2012 Vol.5 No.1, pp.21 - 39

Available online: 20 Jul 2012 *

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