Application of ARIMAX Model on Forecasting Nigeria’s GDP

Abstract

This paper proposes an appropriate ARIMAX model that is used to forecast the Nigeria’s GDP. The data used for the study is sourced from the World Bank for a period of 1990-2019. The ARIMA model is fitted on the residuals using Box-Jenkins approach. The Bayesian Information Criterion (BIC) is adopted to assess the adequacy of the models. The raw data satisfy the assumption of multicollinearity when export is eliminated and the residual series is stationary after the first differencing. This study shows that import is a significant exogenous variable for the GDP dynamics. The ARIMA (0,1,1) with BIC value of 35.253 is considered the appropriate model to be combined with the exogenous variable. The results showed that the ARIMAX (0,1,1) is more ideal and adequate for forecasting Nigeria’s GDP based on the Theil’s U forecast accuracy measures.