Linkages between Trade Openness, Productivity and Industrialization in Nigeria: A Co-integration Test

Abstract

This study examines the effect of trade openness and total factor productivity on industrial output in Nigeria. The data used for this analysis covers the period 1981-2015. The paper employs the VAR model in estimating the effect of trade openness on industrial output. The impulse response function and the variance decomposition are used to examine the response of industrial output to shocks in trade openness and total factor productivity. The results show that trade openness has a positive increasing effect on industrial output in Nigeria while the effect of total factor productivity on industrial output is found to be insignificant. The impulse response function shows over the long run period tfP negative effect on industrial output in Nigeria. The findings of this study certainly have important policy implications: it suggests that policies geared towards increasing trade openness should be encouraged as this tends to improve industrial output. This study contributes to economics literature by looking at the degree to which trade openness and total factor productivity influence industrial output in Nigeria.