Trade policy and economic growth in Nigeria

Adeniyi Ì. Afolabi, Kafilat A. Sotan and Shakirat O. Salahudeen

Economic Thought journal, 2020, issue 5, 84-99, 100-114

Abstract: This study examines the effect of trade policy on Nigeria’s economic growth and uses annual data spanning from 1983 to 2018. The Augmented Dickey-Fuller test revealed that the variables employed have a mixed order of integration (i(0), i(1)). Thereafter, an Autoregressive Distributed Lag (ARDL) technique was employed because it suits the outcome of the pre-estimation test. A cointegration test among the variables was conducted using the ARDL bound test technique. The ARDL estimates showed that the adjusted trade ratio and the price-based variables have a positive impact on the GDP in both the short and the long run. The impulse response function for the estimated ARDL model was computed in order to confirm the accuracy of the Bound testing result. Interestingly, the findings remained robust when the potential effect of the trade policy was accounted for using the impulse response function (IRF) (see the Appendix). The IRF showed dynamically that the GDP responded positively to the trade policy at a higher horizon contrary to the short run estimate, thereby giving more credibility to the result of the ARDL which was being transformed by the IRF. The dynamic responses made it possible to find out that the GDP responded positively and negatively to trade policy, but that the accumulated (long run) effect was positive. The conclusion was reached that in Nigeria the adjusted trade ratio was procyclical while the price-based mechanism was countercyclical throughout the scope of study. The suggestion was made that the policy makers should adopt policies that can promote international trade and innovations, and can shut out any form of black market premium that may cause distortions.

Date: 2020
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