Estimating the demand function for rice imports in Libya using the cointegration method using the bounds test method for the period 1980-2012

Abstract

The main aim of this study is to estimate the demand of rice imports in Libya by using the Autoregressive Distributed Lag Approach to cointegration during the period 1980-2012. The data are tested by using unit root test. The existence of a long-run equilibrium relationship between rice import quantity, real rice import price and real income is verified using bounds test approach to cointegration. Short and long-run dynamics of the demand of rice imports are determined by using the error correction model approach; the error correction is adjusted annually by 60%. Further, the elasticities of price and income are respectively (-0.39) and (1.41), that means demand of rice import is elastic, and the long-run price elasticity is greater than in the short run. While the income elasticity of rice import is less than one in the short run, which means that rice is considered as normal and necessary commodity for Libyan consumers. Key words: autoregressive distributed lag model, Cointegration, import equation, rice, Libya, bounds test.