The impact of the real exchange rate of the Libyan dinar on grain imports for the period 1980-2017

Abstract

The paper aimed to estimate the demand function for wheat imports and identify the most important factors affecting it in Libya. Wheat is one of the most important food products that Libyan people mainly relies on their daily consumption. On order to achieve its objectives, in this study we adopt to use the Bounds Testing Approach to test (cointegration, and the Error Correction Model), within the framework of the Autoregressive Distributed Lag Model (ARDL). In order to verify the existence of an equilibrium relationship in the long run for the quantity of wheat imports and its determinants, the analysis based on annual secondary data issued by the Libyan authority and (FAO) during the period 1980 -2017. To apply the (ARDL) approach, the unit root test was used to detect it’s exist in the variables. The results of bounds test indicated the existence of a long-run equilibrium relationship between the variables of the model manly (price of wheat, real exchange rate, real income and population), which indicates the presence of co-integration, and the value of the error correction factor equal to (-0.74). The estimated error correction coefficient indicates that 74% percent deviation of the variables from its long run equilibrium level is corrected each period where such correction rate for wheat import is equivalent to 1.3 (one year and 3 month) when the model expos to external shock). Furthermore, the elasticity of price and income are respectively (-0.71) and (0.22), that means demand of wheat import is elastic, and the long-run price elasticity is greater than in the short run. While the income elasticity of wheat import is less than one in the short run, which means that wheat is consider as normal and necessary commodity for Libyan consumers.