Trade Openness and Economic Performance: Empirical Evidence from Nigeria

Abstract

With the advent of recession which eventually led to the debt crisis in 1986, Nigeria embarked on trade openness polcies in an attempt to jump-start the economy.  This paper examines the relationship between trade openness and economic performance in Nigeria since 1986.  The results of recent studies have been mixed.  Our period of analysis focused on the trade liberalization (post-SAP) era in Nigeria ranging from 1986 to 2015.  The Johansen cointegration and VECM techniques were adopted to ascertain whether a long run and short run causal relationship exist among the variables in the model.  Annual data were obtained from the World Bank’s World Development Indicators.  Our findings suggest that there is a long run relationship among variables in the study, meaning the variables (economic growth, trade openness, private capital by depository institutions, government expenditure, and capital formation) will tend to move closer together in the long run.   However, the results did not validate the existence of a long run causal relationship running from the explanatory variables to economic growth.  Also, the results did not show any short run causal relationship running from each of the explanatory variable, including trade openness, to economic growth for Nigeria.  As such, the suggestion therefore is that trade openness could be beneficial to the Nigeria economy on the condition that economic policies enacted need to, first, focus on in-ward looking developing strategies to enable factors that would eventually complement sustainable growth.

Keywords: Trade Openness, Economic Growth, Johansen Cointegration, Vector error-correction model, Nigeria