posted on 2017-06-06, 01:35authored byNarayan, Seema, Narayan, Paresh Kumar
This paper applies two new tests for cointegration to re-estimate the import demand elasticities for Mauritius and South Africa. The data for Mauritius are for the period 1963 to 1995 while those for South Africa are for the period 1960 to 1996. Stability of the cointegration space is examined using the Hansen stability tests. Based on the bounds testing procedure for cointegration - the autoregressive distributed lag and the error correction test approaches - we find evidence of cointegration for both countries. Domestic income and relative prices have significant implications on import demands of the two countries in the long run, with the former having the most impact. The cointegration space appears stable for both countries. The dynamic relationship in the import demand model is also apparent from the results; this suggests that any shock to imports takes Mauritius three years and South Africa eight years away from the equilibrium level.