Assessing the Relationship between Domestic Demand and Export Performance in Gabon: An ARDL Modelling

Abstract

Background : Recent studies highlight that traditional export theories cannot fully explain Gabon’s export dynamics, as domestic demand plays a crucial role, especially in LDCs. The Single Equation Approach, enhanced by ARDL bounds testing, effectively captures both short- and long-run relationships in this context. Aims: To investigate the relationship between exports and domestic sales in Gabon into the literature the conventional cointegration techniques have been used. Nevertheless one criticism address to these results is that, it’s well known that the asymptotic power of conventional cointegration tests are quite sensitive to the sample size while the standard time frame into the literature is just over 48 oannual observations. Then the aim of this paper is to overcome this criticism. . Method: To tackle this issue since the literature presents the Single Equation Approach as the conventional approach to tackle the small sample bias we relie on ARDL Boud testing. In fact, the main difference among the two (Single Equation Approach and ARDL) is that the second behind to the conventional cointegartion test on the Error Correction Term they have an additioal test of existence of long run relationships among the varaibles the namely Bound test of cointegration. Results: According to the obtained results on 42 annual observations between 1980-2021 the ARDL Modelling fit well the Model underlying the New Export channel in CEMAC with the Gabonese experience. In fact there is a substitution effect between domestic demand and exports with a negative elasticity of around 23%. Concerning the Reverse causation we reach to the conventional result that export performance impacts negatively domestic demand with a negative elasticity of around 56% implying that the country industrializes when it exports grew. Conclusion: The ARDL Bound testing of cointegration is a relevant engine to assess long run relationship among variables or as a system based estimates. In fact, with this study it has proven to be feasible for a wide variety of economic problem as those investigating here for the Gabonese economy.