Symmetric or asymmetric: how is Nigeria's bilateral trade balance responding to oil price and exchange rate changes?

Abstract

PurposeThe experience of rising trade imbalance between Nigeria and its key trading partners in recent years motivated this study. Previous studies on this issue either ignored bilateral level or assumed that the effect of crude oil price and/or exchange rate changes on trade balance is symmetric. Consequently, this study investigates whether Nigeria's bilateral trade balance with Belgium, China, United Kingdom (UK) and USA is responding symmetrically or asymmetrically to changes in oil price and exchange rate.Design/methodology/approachThe authors used nonlinear autoregressive-distributed lag (NARDL) model that decomposed oil price and exchange rate into partial sum processes of positive and negative changes over the period 1999Q1–2019Q4.FindingsThe study finds that the effects of oil price hike and plunge asymmetrically influence Nigeria's trade balance with the UK and USA. Further evidence indicated that oil price plunge exerts greater influence than price hike in all the cases, except the UK in the long run. Furthermore, Nigeria's trade balance responds asymmetrically and significantly to changes in exchange rate with China in the long run and with China and the UK in the short run. Specifically, the depreciation effect is more prominent than appreciation.Originality/valueSignificant contributions to the existing literature in Nigeria include the recognition that the effects of oil price and exchange rate changes on trade are asymmetric and the disaggregation of trade into bilateral level to identify country-specific effect.