Trade openness and Economic Growth: An empirical analysis from Nigeria

The long run trade orientation of an economy is measured in this article by an index which measures the extent to which the real exchange rate is distorted away from its free trade level by the trade regime. The technique for estimating a cross country index of real exchange rate distortion uses the international comparison of prices prepared by Robert Summers and Alan Heston. Resource endowment constitutes the norm and real overvaluation or undervaluation relative to this norm reveals whether incentives are directed to the domestic or international market. The index is constructed based on data for GDP/capita average price level in US dollars 1976-85 and GDP growth rate/capita 1976-85. Other sections are devoted the comparison of the procedure for 117 countries between 1976-85 and an examination of the empirical relationship between outward orientation and economic growth and sensitivity analysis. The results indicate that Latin America generally was overvalued by 33% relative to Asia and Africa was overvalued by 86%. The real exchange rate distortion index supports the view that Asian countries are more outward oriented. Asian economies have lower price levels which reflect relatively modest protection and incentives oriented to external markets. Latin American countries with moderately high price level and African countries with very high price levels reflect strong protection and incentives directed to production for the domestic market. An alternative specification which eliminates the dummy variables for Africa yields similar results with slightly lower magnitude; i.e. overvaluation is 60% instead of 86% for Africa and Latin America is overvalued by 39% instead of 33% over Asia. A table is provided which indicates by country the distortion and variability of the real exchange rate the GDP growth the 1976 GDP/capita and the investment rate. Another finding was that there is a significant negative relationship between distortion of the real exchange rate and growth of GDP/capita after controlling for the effects of real exchange rate variability and investment level with both the original specification and the alternative. The growth rate/capita of Latin American and African countries would increase 1.5-2.1% with a shift to move outward oriented trade policies. This gain as well as devaluation of the real exchange reate trade liberalization and maintenance of a stable real exchange rate would contribute to positive growth rates. In the analysis of the poorest 24 countries the result was that only rate distortion and not variability and investment rate explained the growth rate. The gain for Ghana for example of adopting the trade policies and exchange rate of Bangladesh would be 5% to its growth.

The study examined the effect of macro-economic variables on economic growth in Nigeria between 1990-2022. Specifically, the paper examined the effect of Exchange rate on Economic growth in Nigeria and determined the effect of interest rate on Economic growth in Nigeria. The paper employed ex-facto research design, using secondary data and adopted SVAR model. The paper found out that interest rate has a significant effect on Economic growth (RGDP) in Nigeria, and found that exchange rate has a significant effect on Economic growth (RGDP) in Nigeria. The study concluded that macroeconomic variables has a significant effect on Economic growth in Nigeria. Based on the study’s findings and conclusions above, the following recommendations were made: the government should improve on her foreign reserves as an absolute measure that will stabilize exchange rate to boost economic environment for effective investment to thrive and contribute to gross domestic product in Nigeria, and interest rate is found to have increased the potentials of Economic growth in Nigeria. It is therefore important to note that since interest rate have significantly affected the Economic growth in Nigeria, the CBN should improve on discount rate to stabilize interest rate to boost economic environment for effective investment to thrive and contribute to gross domestic product in Nigeria.

The study examined the effect of foreign aid and aid-institutional quality interaction on economic growth in Nigeria for the period (1981 - 2022) using FMOLS method. The result of the study shows that foreign aid (ODA) exerted positive but insignificant impact on economic growth in Nigeria, indicating that ODA is relevant to Nigeria’s economic growth but is not among the major drivers of economic growth in Nigeria. The aid-institutional quality interaction variable, the ODA interaction with corruption index (ODA*CPI), showed negative relationship with economic growth which suggests that weak institution, especially corruption, had constrained the positive effect of ODA on economic growth in Nigeria. The ODA absorptive capacity constraint (ODA2) had a negative and significant impact on economic growth which suggests the existence of inverted U-shape relationship between ODA and economic growth. The negative coefficient of absorptive capacity constraint of ODA shows that there is a critical level which beyond, further increase in ODA will impede economic growth. As for other variables, labour force (L), domestic capital (K), crude oil price (COP), financial deepening (FDP) and trade openness (TOP) had positive and significant relationship with economic growth (RGDP) in Nigeria. The coefficient of foreign direct investment (FDI) had a negative sign, implying that FDI had a negative impact on economic growth in Nigeria. It is recommended that there should be prudent utilization of ODA received, better and effective macroeconomic policies, improvement in the quality of governance and strengthening of relevant institutions to abate the problem of pervasive corruption in the country. Finally, aid fungibility should be avoided.

The study examined the interactive effects of trade openness and foreign direct investment on economic growth in Nigeria over the period of 1982 to 2021. Specifically, the study sought to: determine the effects of trade openness on the economic growth in Nigeria and ascertain the effects of foreign direct investment on the economic growth in Nigeria. These variables consist of real gross domestic product (RGDP), Foreign Direct Investment (FDI), trade openness (TRAOPEN), inflation rate (INFLA), exchange rate (EXR) and trade tariff (TRADE). The variables used in the model were foreign direct investment (FDI), trade openness (TRAOPEN), and trade tariff (TRADE). The methods of data analysis was Autoregressive distributive lag Model. The following findings were stipulated; trade openness (TRAOPEN) has positive and significant impact on real gross domestic product (RGDP) its probability value of 0.0001 was less than 0.05 but it was positive and significant impact on real gross domestic product (RGDP) its probability value of 0.0027 was less than 0.05 in long run; foreign direct investment (FDI) has positive and significant impact on real gross domestic product (RGDP) its probability value of 0.0001 was less than 0.05 but it was positive and significant impact on real gross domestic product (RGDP) its probability value of 0.0027 was less than 0.05 in long run. The study recommends that policymakers of Nigeria government should consistently formulate and implement policies that would increase their annual inflows of FDI and their degree of trade openness.

The relationship between trade openness and foreign direct investment in the economic growth in Nigeria has been a subject of debate in most economic literature. The study, therefore, looked at the effect of trade openness and foreign direct investment on economic growth in Nigeria within a temporal scope between 1986 and 2021. The study made use of the Solow growth model and thus included the unemployment rate as a moderating variable along with the segregation of exports component of trade openness into oil and non-oil exports. The Autoregressive Distributed Lag (ARDL) was employed as the method of analysis and it was discovered that non-oil export had a positive and significant effect on economic growth while oil export had a positive but insignificant relationship with economic growth. The unemployment rate was found to have an insignificant and negative effect on economic growth in Nigeria. However, foreign direct investment was found to be positive and insignificant. The study also discovered that there is no long-run co-integrating equilibrium relationship between trade openness, FDI, unemployment rate, and economic growth. Thus it was suggested that there was a need for more funds to be allocated to the non-oil productive sector of the economy so as to boost productivity from the sector and as well as to reduce the unemployment rate

Economic globalization has been lauded as a way of increasing World output based on the economies of scale property and exchange of technology, ideas and information. However, as more emphasis is put on the globalization of industry, the need for environmental sustainability–although as important as ever–is often not included in the conversation. This paper explored the contributions of trade liberalization and foreign direct investment inflows on growth in Nigeria and the implications of economic globalization on the Nigerian environment by applying the co-integration and Vector Error Correction Mechanism using data from 1981 to 2013 sourced from World Development Indicators (WDI) and Central Bank of Nigeria Statistical Bulletin. The findings indicated that trade openness and FDI inflows have made substantial contributions to economic growth in Nigeria. GDP and trade openness also aided environmental quality in the long run. FDI inflows on the other hand contributed to the worsening of the environment evident in more pollution emission in the long run. The paper recommends that Nigeria must put in place sound environmental policy to ameliorate the globalization effects on the environment particularly in FDI attractions. In addition, government and stakeholders alike must adhere to strict environmental enforcement to avoid excessive pollution discharges, indiscriminate deforestation, over exploitation of the flora, fauna and marine resources, and ill defined property rights among others. Government should realise effective macro-economic policies along with momentous improvements in the structure and functioning systems of governance for stabilising economic growth along with trade and financial liberalisation reforms.

The paper estimates the impact of foreign exchange rate on economic growth of Nigeria. The study makes used of Autoregressive Distributed Lag model (ARDL) on time series Data, for the period 1981-2017. The data set on real effective exchange rate, inflation rate, money supply, lending interest rate, real GDP and foreign direct investment, oil revenue and trade openness (% of GDP) were tested for stationary using ADF and PP tests and established stationarity at I (1) for five variables and I (0) for two variables. The correlation test result shows that the highest correlation is between money supply and oil revenue while the lowest correlation is between inflation rate and foreign direct investment. The ARDL Co-integration test revealed the existence of long-run relationship among the variables. ARDL test results reveal that real effective exchange rate is negatively and significant in explaining economic growth in Nigeria in the long-run. In the short-run, the lag value of real effective exchange rate is insignificant in explaining the changes in the current rate of economic growth. in the same period, the lag value of money supply is negative and significant in explaining GDP. But in the long run it is positive and significant in explaining economic growth in Nigeria. The rate of inflation both in the short run and long run is negatively and significant in explaining GDP. The Error Correction Term value of 20.7% shows the speed of adjustment toward long-run equilibrium The findings of the study imply that interest rate in Nigeria is inflationary. Meaning that increase in the rate of interest rate will lead to an increase inflation rate. Therefore, the research study concludes that the impact of foreign exchange rate on the economic growth of Nigeria is negative and significant and that the monetary authorities should adopt flexible exchange rate in Nigeria. Keywords: ARDL, foreign exchange rate, Economic growth, monetary authorities. DOI : 10.7176/JESD/10-18-18 Publication date :September 30 th 2019

The study examined the impact of monetary policy on economic growth in Nigeria, using annual data spanning the period 1985 to 2022. One of the major objectives of monetary policy in Nigeria is economic growth but despite the various monetary efforts that have been adopted by the Central Bank of Nigeria over the years, inflation remains a major threat to Nigeria's economic growth. Despite the increased focus on monetary policy adoption in Nigeria, the country's economic growth remains an issue. High unemployment, low investment, high inflation, and an unstable foreign exchange rate are examples of such issues. These alleged issues are said to have contributed to Nigeria's rapid drop in economic growth. The objective of this paper is to examine the relationship between economic growth, exchange rate, inflation rate, interest rate, and money supply in Nigeria. In this regard, the study employed the Autoregressive-Distributed Lag (ARDL) approach and established a long-run relationship between economic growth and interest rate, inflation, exchange rate, and money supply. Specifically, the findings suggested that in the long run only interest rate has significant effects on economic growth while exchange rate, money supply, and interest rate have a positive relationship with the dependent variable, it was only the inflation rate that has a negative relationship with economic growth in Nigeria. Given the important role of interest rates in promoting economic growth, the study recommends that a significant decrease in interest rates will lead to an increase in the growth of the economy as the reduced interest rate will serve as bait for investors in the Nigerian economy.

This study reevaluated the linkage between trade openness and economic growth in Nigeria with data for the period of 1981 to 2022. The study employed Descriptive Statistics, Unit Root Test, Cointegration analysis, Regression Analysis (ARDL), Error Correction Model as the methods of analysis. The findings from the study showed that trade openness and external reserve impact positively and significantly on economic growth while exchange rate was found to be negative and significant. Also, findings from the error correction model showed that trade openness has a positive and insignificant impact on economic growth, external balance also has a positive significant impact on economic growth. Exchange rate on the other hand displays a negative insignificant impact on economic growth. The error correction term indicated that about 79 percent deviation in the previous year is corrected in the current year. The study therefore concluded that trade openness is a fundamental for economic growth in Nigeria and that external reserve crucial to funding of critical import necessary for domestic production. Furthermore, exchange rate of the naira showed that the economy will benefit more if the appropriate rate is prevalent in the market as this will make export to be attractive. A long run relationship was found among the variables used in the study. Based on the findings from the study we recommended that the government should engage more in international trade especially for key production inputs to boost domestic production. The government should also ensure that they maintain a healthy external reserve and ensure it is channel into the import of critical inputs. The true value of the exchange rate of the naira in relation to major currencies of the world should be targeted in order to make our exports attractive.

This study examines the impact of innovative financing mechanisms on economic growth in Nigeria, focusing on crowdfunding, public-private partnerships, venture capital investments, remittances, and foreign direct investment, alongside key macroeconomic variables such as trade openness, interest rate, and exchange rate. Using annual data from 1990 to 2023 and employing the Autoregressive Distributed Lag (ARDL) model, the study captures both the short-run and long-run dynamics between these financing mechanisms and economic growth. Findings reveal that crowdfunding has a significant positive impact on economic growth in both the short and long run, underscoring its growing importance as an alternative financing source that enhances entrepreneurial activity and capital formation. Conversely, public-private partnerships exhibit a significant negative effect on economic growth, highlighting the institutional, regulatory, and operational challenges that undermine their effectiveness in Nigeria. Exchange rate volatility significantly hampers economic growth, emphasizing the importance of exchange rate stability in fostering investor confidence and macroeconomic stability. Interest rates show a positive influence, suggesting that effective monetary policy can support economic growth. Remittances demonstrate limited long-run impact, largely due to their predominant use for consumption rather than productive investment. Foreign direct investment and venture capital investments do not exhibit significant long-run effects, underscoring the need for reforms that enhance the investment climate and foster linkages between foreign investors, domestic enterprises, and innovation ecosystems. The study recommends targeted policy actions to enhance the efficiency of innovative financing mechanisms, strengthen institutional frameworks, and promote financial innovation to maximize their developmental impact on Nigeria’s economic growth.

This study examined the impact of fiscal deficits on economic growth in Nigeria from 1981 to 2021 and the causality between them. The Autoregressive Distributed Lag (ARDL) model was employed to examine the nature of short-run and long-run relationships and the Granger causality test was conducted to ascertain the existence of a causal relationship between fiscal deficit (FD) and economic growth (RGDP) in Nigeria. The result showed that fiscal deficit (FD) has a positive impact on economic growth both in the short-run and the long run, in tandem with the Keynesian proposition. As for other variables included in the model, gross capital formation (GCF) and trade openness (TOP) had a positive and significant effect on economic growth (RGDP) both in the long-run and short-run. Unemployment rate (UNR), interest rate (INT) and inflation rate (INF) had a negative impact on economic growth both in the long-run and short-run. The exchange rate (EXR) exerted a positive impact, though insignificant on economic growth in the long run but in the short run, it had a negative effect. The Granger causality test result showed a unidirectional causality between real gross domestic product (RGDP) and fiscal deficit (FD); the causality flows from real GDP to fiscal deficit (FD). The study recommended that deficit spending should be properly managed and prudently utilized in the provision of critical economic and social overhead capital that would expand the productive capacity of the economy to enhance private investment and other productive activities. To minimize adverse consequences of fiscal deficit, none of the sources of deficit financing should be exploited excessively. There should be deliberate action on the part of the government to promote productivity in the country to curtail inflationary pressure.

Nigeria is an oil-rich country with a significant reliance on petroleum consumption. This study examines the tripartite effects of petrol final energy consumption, trade openness, and foreign direct investment on economic growth in Nigeria over the period 1990-2021. The unit root results and the number of data points at the disposal of this study permit the application of ARDL econometric estimation technique. The short-run and long-run estimated parameters indicate that there are impacts of petroleum consumption, Foreign Direct Investment (FDI) and trade openness on economic growth in both short-run and long-run in Nigeria. In the long run, petroleum consumption (0.3762%), trade openness (0.2272%) and FDI (0.1271%) have a positive and significant impact on economic growth. The coefficient of the error correction term is negative and statistically significant. This implies that the model is mean-reverting, and that the short run model tends to revert to its long-run equilibrium value over time in the event of disequilibrium at the speed of 63% per annum. The model is robust for policy making as it passed diagnostics tests, no evidence of serial correlation, no evidence of heteroskedasticity, no evidence of model misspecification, there is dynamic stability via Cusum and Cusum of Square and the residuals are normally distributed as evidenced from Jarque-Bera statistics. Based on the statistically significant positive impacts of petroleum energy consumption, trade openness and foreign direct investment, this study suggests that policies aimed at increasing petroleum consumption, FDI and trade openness are going to lead to increase in economic growth in Nigeria.

This work investigates the monetary policy transmission mechanisms and their efficacy in predicting economic growth in Nigeria using the ARDL methodology. Variables included in the model were growth rate of real domestic gross product (RGDP), M2 broad money supply definition, cash reserve ratio (CRR), nominal exchange rate (EXCR); inflation rate (INFL), interest rate and deposit money banks credit to the private sector (BCR). The unit root test using the ADF test revealed that all our variables were integrated at levels I (0). The study proceeded to estimate the ARDL bounds tests; the ARDL long run estimations; the diagnostic tests, normality and stability tests respectively. The critical findings from our result and analysis revealed that broad money supply (M2), exchange rate (EXCR), cash reserve ratio (CRR) and the rate of inflation (INFL) were the major monetary policy transmission mechanism predicting the level of economic growth in Nigeria. Likewise, the study identified interest rate (INTR) and deposit money banks credit to the private sector (BCR) as weak transmission variables driving economic growth and prices in Nigeria. The study concludes that the monetary policy transmission mechanisms have had a mixed bag in predicting economic growth in Nigeria. This conclusion was arrived based on the fact that the findings suggest that the negative impacts outweigh the positives, especially, as the critical variables like interest rate, credit to the private sectors and exchange rate depreciation plays a key role in driving economic growth. The monetary authority should be religious in seeing through monetary policies, especially, in maintaining consistency. Devaluation or depreciation of the naira also is not pro-growth in Nigeria and should be jettisoned, pending the diversification of our economy and improvements in our domestic productive capacities. Evidently, access to private sector credit at a lower interest should be pursued vigorously. Keywords: monetary policy, transmission mechanism, economic growth and devaluation DOI : 10.7176/RJFA/10-18-06 Publication date :September 30 th 2019

This paper examines the impact of the exchange rate on economic growth in Nigeria. In particular, it investigates both the long-run impact, the short-run dynamics, and the long-run relationship of the underlined variables of the impact of the exchange rate on economic growth in Nigeria using the autoregressive distributed lag model (ARDL) and an error correction model (ECM). The results show that there is a positive relationship between the exchange rate and economic growth in the long run and a positive relationship between trade openness and economic growth in the long run. Foreign direct investment net inflows also have a positive relationship with economic growth. More specifically, the results indicate that a 1 percent rise in the exchange rate in the long run leads to a 0.006 percent rise in economic growth rates, and a 1 percent rise in trade openness and foreign direct investment net inflows in the long run increases economic growth by 0.12 and 2.27 percent, respectively. Given the positive impact of exchange rates on RGDP, maintaining a stable exchange rate environment is crucial, and policymakers should aim to implement measures that promote stability while also considering policies that enhance competitiveness. This may involve monitoring and managing currency fluctuations to ensure they remain favorable for both domestic industries and export activities.

This work investigated the impact of labour force participation on economic growth in Nigeria for the period 1990 to 2021 using annual time series data on real gross domestic product (RGDP), male labour force participation rate (MLFPR) and female labour force participation rate (FLFPR). The objectives are to examine the impact of male labour force participation rate (MLFPR) and female labour force participation rate (FLFPR) on economic growth in Nigeria and to ascertain the causality relationship between male labour force participation rate, female labour force participation rate, and economic growth in Nigeria using ARDL Bounds Testing methodology. The result indicated that male labour force participation rate (MLFPR) and female labour force participation rate (FLFPR) had statistically significant impact on economic growth in Nigeria in the short run. The result also revealed that, in the long run, male labour force participation rate (MLFPR) and female labour force participation rate (FLFPR) had statistically insignificant impact on economic growth in Nigeria. A uni-directional causality relationship is found between male labour force participation rate (MLFPR) and economic growth (RGDP) in Nigeria over the period covered with the causality running from economic growth to male labour force participation rate. The result further indicated that there is no significant causality relationship between female labour force participation rate (FLFPR) and economic growth in Nigeria over the period covered. The study therefore recommended that government should design active policy for male and female participation in labour force and seriously empower women to participate in labour force in Nigeria.