Abstract
Abstract This study investigated Nigeria's economic interactions with China, India, and the USA with a view to identifying the main source of real output shock to Nigeria in the period 1981Q1-2019Q4. The analysis followed the network approach of Diebold and Yilmaz (2014), which uses the size and direction of normalized generalized forecast error variance decompositions (NGFEVD) of a vector error correction model to track shock propagation among economic entities. The results indicate that China and India are net transmitters of real output shocks to Nigeria. The results also indicate that Nigeria is a net real output shock receiver. The study concludes that Nigerian policymakers should evolve policies that can insulate the economy against real output shock heatwaves from around the world, especially China and India. Such policies should mainly target the diversification of the economy such that crude oil will no longer be the only major source of revenue.
Highlights
Global business cycles and financial uncertainties are effortlessly transmitted to low-income and developing countries such as Nigeria through several channels like trade and capital flows. Samake and Yang (2014) identified trade as the most notable transmission channel mechanism. Biljanovska and Meyer-Cirkel (2016) suggest that notwithstanding the low trade activities involving most developing and low-income nations, they are very much exposed to world business uncertainties
This study investigated the patterns of real output shock transmission from China, India and the USA to Nigeria with a view to establishing the economy or economies that has the potential of transmitting real activity shocks to Nigeria
This implies that China is a net real output shock transmitter, especially to the Nigerian economy
Summary
Global business cycles and financial uncertainties are effortlessly transmitted to low-income and developing countries such as Nigeria through several channels like trade and capital flows. Samake and Yang (2014) identified trade as the most notable transmission channel mechanism. Biljanovska and Meyer-Cirkel (2016) suggest that notwithstanding the low trade activities involving most developing and low-income nations, they are very much exposed to world business uncertainties. The authors maintained that poor and developing economies like Nigeria are quite vulnerable to shock transmissions from the United States of America (USA or US) and other developed and emerging market economies like China, India, and Brazil. They opined that in specifics, oil and primary commodity-exporting nations have a high level of connectedness or linkage with emerging market economies, which leaves them with a high degree of vulnerability against shocks which could be either output or financial.
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