MEXICAN DEMAND FOR RICE IMPORTS (ORYZA SATIVA L.) DURING NAFTA: EVIDENCE FROM A NARDL MODEL WITH STRUCTURAL CHANGE AND OUTLIERS

Abstract

ABSTRACT 

Objective:

This study aimed to determine which model best captures the behaviour of rice imports during the North America Free Trade Agreement (NAFTA) regime (1994–2018).

Methodology

Mexican demand for rice imports is estimated with Autoregressive Distributed Lag Model (ARDL) and Nonlinear Autoregressive Distributed Lag Model (NARDL), both with and without structural change and outliers.

Results

It starts with the ARDL and NARDL models, obtaining non-cointegration, as well as diagnosis and specification problems. Subsequently an ARDL model is proposed with structural change and outliers, which represents an improvement but still has specification problems. Finally, the best model is obtained incorporating non-linearity.

Limitations/Implications

It is a study for a specific grain, so the results obtained are only valid for rice imports. Nevertheless, it must be considered that it is a basic grain. Moreover, a new methodology is used to estimate the import demand function.

Findings

There is evidence of an asymmetric response of rice imports to fluctuations in economic activity and the exchange rate in the short run, and only in the long run for the latter. An increase in rice imports with NAFTA is also confirmed, as well as two extraordinary variations of rice imports during the study period.

Keywords

Rice imports; ARDL; NARDL; structural change; outliers