Does Trade Openness Contribute to Economic Growth in Nigeria? Evidence from ARDL

A. O. Oloruntuyi, O. J. Ojeka

Abstract

The study used the autoregressive distributed lag (ARDL) Bounds postulated by Pesaran et al. (2001) to examine the effect of trade openness on economic growth in Nigeria. Also, the time series data sourced from the World Development Indicators (2020) and Central Bank Statistical Bulletin (2020) were used. The study measured economic growth by real GDP annual growth rate using 2010 as the base year, and trade openness by the foreign trade (OPN) (% of GDP). The results of the unit root test from the Augmented Dickey-Fuller and Phillip-Perrion indicated that the series were integrated of different orders, meaning a mixture of I (1) and I (0), and thus necessitated the application of the Bounds co-integration approach in exploring long-run co-integrating vector equation. The results of the ARDL bounds test indicated the existence of a long-run relationship between trade openness, control variables, and economic growth in Nigeria. The long-run and short-run coefficients indicated that in the long-run, trade openness negatively but insignificantly affected economic growth but positively and significantly affected economic growth in the short run. This finding is consistent with previous studies like Omoke et al., (2021) and Lawal et al., (2016) however contradicts the results of Nwadike, et al., (2020) who concluded that trade openness positively and significantly affected economic growth in Nigeria in the long-run. It is essential to state that given this scenario, policy-makers should pay keen attention to the trade sector to manipulate its behavior such that the consequences of the long-run negativity effect should be carefully treated.

Keywords

Trade openness, Economic growth, investment, ARDL, Nigeria

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