Trade- GDP Nexus in Nigeria: An Application of Autoregressive Distributed Lag (ARDL) Model

Abstract

This study examined Trade-GDP nexus in Nigeria using the autoregressive distributed lag(ARDL) approach. The study covers the periods 1970-2012, employing data sourced from Central Bank of Nigeria Statistical Bulletin of various issues. Econometric evidence revealed that trade openness; foreign direct investment and exchange rate were some of the key factors that explained the trade-GDP nexus in Nigeria. In addition, the estimated ECM result revealed 31% speed of adjustment between the dependent variable (RGDP) and independent variables (TOP, FDI and EXR). Findings from the study also showed that the endogenously determined variables of (TOP, FDI & EXR) are jointly significant in explaining changes in Nigeria’s economic growth. However, trade openness and exchange rate management influences economic growth negatively because of unfavourable terms-of-trade between Nigeria and her trading partners and the continuous depletion of the external reserves. We therefore recommend among others, expansion of the economy’s export base by complete diversification of the economy away from the oil enclave as well as effective exchange rate management in Nigeria by the monetary authorities.

Keywords: Trade, economic growth, ARDL co -integration.

JEL Classification: F43, F14, C32