Determinants of Imports Demand in Sierra Leone; Application of Error Correction Model (1992 – 2022)

Abstract

This research utilizes an error correction model to investigate the behaviour of the determinants of imports demands in Sierra Leone using time series data for the period 1992 to 2022. ARDL modelling process was employed to capture the effect of real gross domestic product, real exchange rate, real interest rate and real export on imports demand.  The results suggest that there exists a cointegrating relationship between import demand and its determinant. Results of the stationarity tests showed that the variables comprised of mixed series. Co-integration results also showed the existence of a unique long-run equilibrium. The long-run results showed that real GDP has a positive relationship with imports, and it is significant at the conventional level. A negative relationship was also found to exist between the exchange rate and imports and it was also significant. The short-run suggests that real export has the most influence on aggregate import demand in Sierra Leone. The real interest rate is however insignificant in both the long and short runs. These results imply that expenditure-reducing policies are more effective than exchange rate policies in correcting Sierra Leone's trade deficits.