Determinant Of Import Demand Of Ethiopia Co Integration Analysis.

In this paper the determinant of Ethiopia aggregate demand is studies using yearly data inrnthe period 197112 to 200617. The main objective of the paper is to identify the mainrndeterminant of Ethiopia import and the relative elasticity of explanatory variables. Thernaugmented dickey fuller and Phillips Peron test is used to test the unit root test. Johansenrnco integration and error correction model is employed on yearly data in order to approvernthe existence of long run relationship and to identify the long run and short runrnrelationship.rnThe main finding is that, in the long run Ethiopia import is mainly affected by realrneffective exchange rate, real gross domestic product and relative price. It shows elasticrnimport demand with respect to explanatory variables except relative price. The sign ofrnreal effective exchange rate is unexpected in the long run. The short run adjustmentrncoefficient is identified and has a correct negative sign; however most of the coefficientsrnof short run variables are statistically insignificant. The implication of the finding is that,rnineffectiveness exchange rate policy in the long run, effectiveness of pricing policy andrndifficulty of substituting imported goods by domestic product.

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