The nexus between value addition, liquidity, and imports in Zimbabwe (1980-2015): A co-integrated VAR approach
Date
2017-05-06
Authors
Gwacha, Benhilda
Journal Title
Journal ISSN
Volume Title
Publisher
University of Zimbabwe
Abstract
The study made an attempt to analyze empirically the nexuses between value addition, liquidity
and imports in Zimbabwe. In order to make an intricate examine and understand the nexuses
among the variables, imports are decomposed into two categories (Investment & raw material
goods imports, and consumption & other goods import). Co-integrated VAR approach was
employed to determine the relationship and data for the period 1980 to 2015 for Zimbabwe was
used. The study found no evidence of granger causality between value addition and liquidity.
However, empirical results derived from IRFs, and VDCs indicate that some of the variation in
value addition in the long run is explained by variation in liquidity and liquidity respond to shocks
in value addition in the long run as such it can be concluded that the two variables respond to the
same shocks. Empirical results derived from IRFs, VDCs and granger causality show that while
there is a bidirectional causality between value addition and consumption & other goods import,
there is a unidirectional relationship between value addition and imports of Investment & raw
material goods. There is also evidence of unidirectional causality between liquidity and the two
categories of imports, running from liquidity to imports. The study also found that there is a long
run relationship between the two categories of imports and liquidity, however imports of
investment & raw material goods have a positive relationship with liquidity while imports of
consumption &and other goods have a negative relationship with liquidity in the long run. The
two categories of imports have similar relationships with value addition in the long run to those
between them and liquidity. In short, an increase in liquidity will not have a significant impact on
value addition in the Zimbabwean economy. Hence any polices aimed at solving the liquidity crises
will not be enough to address the value addition challenges also. Therefore, the government has
to address these challenges simultaneously by re-looking in to the trade policy since both value
addition and liquidity are linked to imports in the economy.