IMPACT OF INTERNATIONAL TRADE ON THE ECONOMIC GROWTH OF NIGERIA
Abstract
The study examined the impact of international trade on Nigerian economic growth from 1981 to 2017 using Johansens’ cointegration and Vector error correction (VECM) methods to analyze time series data. This is to evaluate the impact of international trade on Nigerian economic growth in order to understand how international trade has impacted Nigeria’s economy during the study period.
Given the peculiar nature of regime change in Nigeria, the new government is sworn in on the fifth month of the fiscal year, during which time the outgoing government has spelled out the trade policy direction. This was not taken into account in previous studies and thus constitutes the study’s significant contribution.
At I, it was discovered that all variables of interest were stationary (1). The length of the lag was confirmed to be one lag. The result of Johannes’ cointegration indicates the existence of a long run relationship between Nigeria’s GDP and net export, trade openness, real exchange rate, interest rate, and foreign direct investment.
The vector error correction model result showed that, while net export had an insignificant positive impact on Nigerian economic growth, trade openness, real exchange rate, interest rate, and foreign direct investment had significant negative impacts on Nigerian economic growth during the study period.
The rate of adjustment is found to be 0.59 percent per year, with these variables accounting for 62 percent of changes in the level of economic growth in Nigeria during this study period. It is recommended that exports be encouraged, with exporters encouraged to add value to primary products before exporting,
that the economy’s openness be regulated to protect local firms and discourage dumping and reckless importation, that investor confidence be built in order to increase the inflow of foreign direct investments into Nigeria, that the exchange rate be stopped being regulated, and that interest rates be reduced, particularly for those engaged in agriculture. International Trade, Economic Growth, Nigerian Economy, Vector Error Correction Model are some of the terms used in this article.
INTRODUCTION
Over time, international trade has demonstrated its effectiveness in stimulating growth and development in countries, particularly developing countries such as Nigeria. The accompanying globalization, which has reduced the world to a “global village,” has also enabled countries to interact more effectively and efficiently. Thus, international trade, defined as the exchange of goods and services across national borders, is here to stay.
Many countries’ economies, such as Nigeria’s, cannot survive in isolation today, emphasizing the importance of international trade. Countries are now struggling to compete through international trade, and as a result, they are making their goods more acceptable in terms of form, quality, packaging, and quantity.
Standardization and efficiency are present. However, the difficulties that developing countries like Nigeria face in participating in international trade cannot be overstated, especially given its unique nature. With long periods of truncated democratic rules imposed by the military, it is understandable that the long military rules may have altered many economic policies.
Since these economies’ openness through WTO membership, challenges such as technological know-how, which affects quality, have made their products less competitive. Because they are exported in their raw form, these products have little or no value added to them. Because of their technological know-how, advanced countries benefit from international trade.
The majority of developing countries export more primary products. Their inability to capitalize on the value chain of these products diminishes the significance of international trade. Developing countries often end up importing the finished goods of the primary goods they exported at a higher price.
International trade can only lead to long-term economic growth if the playing field is level. As a result, as long as economies practice a no-barriers trade system without protecting local producers, the desired gain from international trade will continue to elude developing countries with little or no technological know-how. Nigeria, as a developing country, is a major player in international trade.
Its primary source of income is crude exports. It’s no surprise that its annual budgets and expenditure profiles are tied to international oil prices. The fluctuation of international oil prices has an impact on the country’s income and expenditures.
As a result, Nigeria’s external trade income is primarily derived from international trade. Because it is overly reliant on oil exports to generate income, its earnings are vulnerable to fluctuations in the international price of crude oil. The 2014/2016 crash in international crude oil prices, which resulted in Nigeria experiencing a recession in the first quarter of 2016, sparked a lot of debate about the importance of international trade in Nigeria’s economic growth.
IMPACT OF INTERNATIONAL TRADE ON THE ECONOMIC GROWTH OF NIGERIA
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