Openness and Economic Growth in Nigeria

Abstract

The idea that openness is one of the most important determinants of economic growth is becoming increasingly popular among governments of less developed countries (LDCS) and Nigeria in particular. Conventional wisdom suggests that openness promotes economic growth. However, while various theoretical models predict that openness to international trade accelerates economic growth, the empirical evidence has been mixed or imprecise. The study empirically tests whether openness leads to economic growth in Nigeria. The ordinary Least Squares (OLS) technique and data from 1970 – 2008 from CBN statistical bulletin, 2008 were employed. GDP (Economic Growth) is the dependent variable, whereas degree of openness, investment, government expenditure and lagged GDP are the independent variables. The independent variables have direct impact on the economic growth respectively. The results show that, a unit increase in the degree of openness holding other variables constant, leads to about 5 percent increase in GDP; 1 percent increase in investment holding other variables constant, leads to about 18 percent increase in GDP; 1 percent increase in government expenditure given other variables, leads to about 9.7 percent increase in GDP and 1 percent increase in previous GDP given other variables, leads to about 100 percent increase in the current GDP. It also shows adjusted R² of 0.99. The unit root tests show that all the variables, but lagged GDP are stationary only after first difference, and the cointegration test shows that there exists long run equilibrium between economic growth, trade openness, investment, and government expenditure in Nigeria. The study reveals that openness impact significantly on economic growth in Nigeria.

Key words: Openness, Economic growth, Trade, Nigeria.