Import demand with domestic price endogeneity : the South African case

This paper uses the imperfect substitutes model to derive an import demand function. However, here domestic prices are endogenised within a simultaneous framework in order to assess the full effect of a currency depreciation. The Johansen multivariate cointegration approach is used to estimate the import demand model as it accounts for nonstationary data and allows simultaneity between the variables. Prior to its use, the "small country assumption", which allows for import price exogeneity, is tested for South Africa. Two di ffering tests indicate that this assumption holds although further exploration reveals that there is scope to clarify the issue. Ultimately the paper shows that import price elasticities generally found in import demand curves (stemming from the elasticities approach) may significantly overstate the effect of an exchange rate depreciation on the trade balance.

Grantor dc:publisher.institution

School of Economics

Year dc:date.issued

2006

Author dc:creator

• Ramkolowan, Yash

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/11427/5708

OAI identifier oai:identifier

oai:open.uct.ac.za:11427/5708