Effects of Trade and Exchange Rate Policies on Imports and Trade Tax Revenue in Nigeria

Abstract

This paper examines the impact of trade and exchange rate policies on import and trade tax revenue in Nigeria. This study, which covers 1970 – 2007, adopted the ordinary least squares (OLS) method, and some diagnostic tests were performed. Time series properties of the variables were tested and error correction models were estimated. Results show that the average tariff in Nigeria has a negative impact (hinders) on import, with an impact lag. Specifically, it produced a significant negative impact on consumer goods and raw material imports, but a significant positive effect on capital goods import. The case of capital goods import is different, perhaps because of the various waivers and low tariff on this type of import. Real exchange rate is found to have an unstable or unpredictable relationship with import of all categories. Real GDP produced a significant impact on all the four categories of imports. The coefficient of income elasticity of demand for import varies from 1.6 in the case of capital goods import to 1.2 in respect of consumer goods import. In the same vein, results show that tariff has a positive and significant relationship with trade tax revenue, with an impact lag. Real exchange rate is found to have an unstable or unpredictable relationship with trade tax revenue. Real GDP produced a positive and significant impact on trade tax revenue, with an impact lag. The foregoing therefore suggests that the link between import and trade tax revenue is trade and exchange rate policies. Some policy recommendations are made to inform the finetuning of existing policies.