Diversification and Economic Development in Emerging Economies: The Nigerian Experience

Abstract

This study seeks to investigate the relationship between diversification and economic development in emerging market economies, using the Nigerian scenario. The study employed annual time series data sourced from the Central Bank of Nigeria and World Development Indicators. Economic diversification was represented by diversification index while economic development was proxy by per capita GDP. Autoregressive Distributive Lag (ARDL) and granger causality estimation techniques were used for the analysis. It was revealed that long run relationship exists among the variables in the estimated model. The granger causality results showed that no bidirectional causality was found between diversification index and per capita GDP. The bound test results showed that a long run relationship exists among the variables in the estimated equation. This signifies the relevance of these variables in promoting economic development in Nigeria. The study recommends that; the government should diversify the economy from crude oil to overcome export instability or the negative impact of terms of trade; and there should be prudent government spending and conducive and enabling environment for both the growth of other important sectors and improved domestic investment, and exports from sectors such as agriculture, manufacturing, textile as well as minerals and steel should be encouraged; monetary authorities should enhance the formulation of appropriate monetary policies that will help to control inflation and exchange rate for sustainable economic development; and exchange rate should be stabilized through the use of appropriate monetary policy tools as well as support export diversification programmes in order to diversify into the core sectors of the economy and stem the tide of the mono-product syndrome