Determinants of Bilateral Trade Flows of Nigeria: An Application of the Augmented Gravity Model

Abstract

Macroeconomic policies that aim to achieve clear and beneficial trade relationships are of utmost importance to a developing country due to complex global economic integration. This is particularly the case for Nigeria’s bilateral trade relationships and is a determinant of the size and direction of capital movements and the volume of trade flows. Thus, to analyse Nigeria’s bilateral trade flows and provide a connection between Nigeria’s economic size and distance with trading partners amongst other variables, this paper adopts the augmented gravity model. Considering both trade and non-trade variables, the gravity model has been widely applied to research on international trade. We adopt a panel data of 16 trading partners of Nigeria for the period 2000 to 2016 to estimate an augmented version of the gravity model with the aid of the panel fixed effects estimation technique. Amongst several determinants, the empirical results reveal that domestic and partner’s GDPs and distance are consistent with the predictions of the gravity model.