Trade Openness and Output Growth in Nigeria: An Econometric Analysis

Trade Openness and Output Growth in Nigeria: An Econometric Analysis.

ABSTRACT

This research work studies the international competitiveness of the Nigerian economy in the global market by analyzing the relationship between trade openness and output growth in Nigeria.

Using time-series data over the period 1970-2007, we show that output growth of the Nigeria economy is a function of two sets of shocks; (i) external shocks (openness and real exchange rate) and (ii) internal shocks (real interest rate and unemployment rate).

A non-monotonic and an ANCOVA econometric models are postulated in  order to capture the structural pattern of the relationship between openness and output growth as well as the policy effect of structural Adjustment program (SAP).

The result shows that there is an inverted U-shape (no-monotonic) relationship between openness and output growth in Nigeria and the optimum degree of openness for the economy is estimated to be about 67%.

Also, the liberalization policy of the SAP has positive economic effect on the output growth. The ECM reveals that 79% of the equilibrium error is being corrected in the next period. We concluded that unbridled openness may have deleterious effect on the real growth of output of the Nigerian economy.

INTRODUCTION

The current period in the world economy is regarded as a period of globalization and trade liberalization. In this period, one of the crucial issues in the development and international economics is to know whether trade openness indeed promotes growth.

With globalization, two major trends are noticeable: first is the emergence of multinational firms with a strong presence in different, strategically located markets; and secondly, the convergence of consumer tastes for the most competitive products, irrespective of where they are made.

In this context of the world as a “global village”, regional integration constitutes an effective means of not only improving the level of participation of countries in the sub-region in world trade but also their integration into the borderless and interlinked global economy. (NEEDS, 2005).

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