Factors Influencing Nigeria’s Trade

Abstract

This paper examined factor influencing Nigeria’s trade with the rest of the world using standard time series analysis technique on annual data spanning 1981 to 2012. Focus was on industrial and agricultural production. The stylized facts showed the increasing neglect the non-oil sector has suffered over the years. On average, oil trade dominates total trade and is about three times non-oil trade. Oil trade is also more volatile, about 2 times more volatile than non-oil trade. Also, oil balance of trade is comparatively two times more unstable. Nigeria’s export on average has been larger and more volatile than import due to the dominance of oil-export. All the variables were I(1) and cointegrated. The error correction results showed that in industrial output growth is more important in explaining balance of trade and total trade adjustments to equilibrium. This could be misleading, because the Nigerian industrial sector is dominated by activities in the petroleum (oil) sector which predominantly is an extractive industry. This implies primary product trade drives the Nigerian economy. This underscores why fluctuations in the crude oil market has had significant effect on the Nigerian economy in time past and in contemporary times. It was concluded that Nigeria’s trade pattern does not conform to the Hescher-Ohlin theory of factor endowment. Amongst others, it was recommended that the Nigerian state should come up with a consumption theory, where citizens and foreign nationals domiciled in the country are encouraged to consume more of made – in – Nigeria goods.

Keywords: Factors, Nigeria, oil, non-oil, Trade

JEL Classification: C22 F14