An Empirical Evaluation of the Bilateral Non-oil Export Trade Balance between Nigeria and Egypt: A Test of Marshall-Lerner Condition

Abstract

Bilateral trade is the exchange of goods between two nations promoting trade and investment. The two countries will reduce or eliminate tariffs, import quotas, export restraints, and other trade barriers to encourage trade and investment. The Marshall-Lerner (M-L) condition which is at the heart of the elasticities approach to the balance of Trade. The condition seeks to answer what happens to the current-account balance of a country when there is a devaluation of the currency. In this study, an empirical examination of the validation of M-L Condition was examined in the Bilateral Non-Oil Export Trade Balance between Nigeria and Egypt for the period 1980 to 2018. The distributed lag (DL) mechanism was used to estimate the short as well as the long run parameters. The results of the findings validated the M-L Condition in the trade relations with Egypt in the short and long run and that the M-L Condition is supported by data. The study amongst others recommended that for Nigeria to implement any devaluation policy, Nigeria must first and foremost ensure a substantial increase in her non-oil exports as against imports. This is the only way the benefits can be maximized for the country.