Academic journal article American Academic & Scholarly Research Journal

Foreign Trade and Economic Growth in Nigeria: An Empirical Analysis

Academic journal article American Academic & Scholarly Research Journal

Foreign Trade and Economic Growth in Nigeria: An Empirical Analysis

Article excerpt

Abstract. This study empirically examine the impact of international trade on economic growth in Nigeria from 1970-2010. Being a time series data, to avoid spurious regression result, the first step was to test for stationary of the data by using Phillips Peron unit root test. Then Johansen (1988) technique was used to establish if the non-stationary variable are cointegrated. The result of stationary and normality test reveals that the model is fairly well specified and could be used for policy analysis. Empirical investigations reveal that three variables are statistically significant at 5% and these variables are export, foreign direct investment and exchange rate and they are positively related to real GDP while other variables such as import, inflation rate, openness exert a negative influence on real GDP. The study demonstrates that increase participation in global trade helps Nigeria to reap static and dynamic benefit of international trade despite non conformity of the coefficient of the openness. Both international trade volume and trade structure towards high technology export result in positively effect on Nigeria economy. We therefore recommend that the government should design appropriate strategy by diversifying the economy through export promotion, stimulating foreign direct investment and exchange rate stability in order to boost productivity of Nigeria economy by raising the standard of living of the citizens.

Keywords: International t Trade, Economic Growth, Diversification and Openness.

1 INTRODUCTION

Foreign trade can been defined as trade across the frontiers that is with the rest of the world, it has been argued that, it plays a prominent role in promoting economic growth and productivity in particular, and debate have been ongoing since several decades ago. Historical validation has revealed that internationally active countries tend to be more productive than countries which only produce for the domestic market. As a result of liberalization and globalisation a country's economy has become much more closely associated with external factors such as openness. Against this background, conducting a study on the effects of international trade on economic growth is imperative in this globalise era. It helps policymakers to marshal appropriate policies by determining the source of productivity growth with respect to international trade.

Since the introduction of economic reforms and the adoption of outward oriented strategies in Nigeria, Nigeria economy have experienced dramatic growth. Additionally, Nigeriaparticipation in international trade has contributed tremendously in productivity of domestic industries and advancement of technology. Therefore, research on how international trade contributed Nigeria's economy growth can serve has a distinguishing case study revealing a latecomer catches up with forerunners by increasing his participation on the global stage.

This study begins with literature review from the perspective of international trade effect on economic growth in section 2.

In section 3, stylized facts are discussed respectively. Model specification, estimation and interpretation of result are discussed in section 4.

Section 5 presents summary, conclusion and recommendation according to the model constructed in this research.

2 REVIEW OF SELECTED EXISTING LITERATURE

Detailed and historical validation has proved that international trade affects economic growth positively by stimulating capital accumulation, industrialization, technological progress and institutional development specifically increased imports of capital and intermediate products, which are not available in the domestic market may induce the productivity of the manufacturing sector (Lec, 1995).

More active participation in the international market by promoting exports will lead to competition and trade improvements in terms of productivity (Wagner, 2007).

Before the 1960s, research in trade effects was actually limited to a few specific countries, with the development of econometrics, however, many complicated methods based on a mathematical model were introduced to analyse the impact between trade and economic growth. …

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