TITLE:
Trade Openness and Disaggregated Import Demand in East African Countries
AUTHORS:
Micah Samuel Gaalya, Bbaale Edward, Hisali Eria
KEYWORDS:
Trade Openness, Disaggregated Imports, EAC Countries
JOURNAL NAME:
Modern Economy,
Vol.8 No.5,
May
16,
2017
ABSTRACT: Despite the well-known gains from trade, the effects
of trade openness are a priori ambiguous. For this reason it’s important to
establish effects of trade openness on both aggregate and disaggregated import
demand. This study sought to establish the effects of trade openness on
disaggregated imports. A panel data cointegration technique that uses the Fully
Modified Ordinally Least Squares and Dynamic Ordinally Least Squares was employed.
The data are annual cross country panels of EAC countries covering the period
1994-2012. The data were obtained from the IMF’s International Finance
Statistics, the World Bank’s World Development Indicators as well as the World
Integrated Trade Solution. The findings on the effects of trade openness on
import demand show that an increase in the tariff rate reduces imports both at
the aggregate and disaggregated levels. An increase in income positively
influences the aggregate and disaggregated levels of imports. An increase in
prices positively influences the aggregate and disaggregated levels of imports.
Exports positively influence the aggregate and disaggregated levels of imports.
Lastly the real effective exchange rate negatively influences aggregate and
disaggregated imports. The policy implications is that governments of EAC
countries could use trade openness reforms, particularly the tariff rate to
minimize the importation of goods that can be produced locally, this will help
in managing the balance of trade.