TRADE LIBERALIZATION AND ECONOMIC GROWTH IN NIGERIA: AN EMPIRICAL ANALYSIS (1980 – 2015)

ABSTRACT

This study examined the effect of trade liberalization on economic growth in Nigeria using increase in real gross domestic product as proxy for economic growth. This study is positioned to identifying and analysing the variables that interact with foreign trade to promote economic growth. The literature of the study was partitioned into four main sections namely, conceptual framework, theoretical framework, theoretical exposition and empirical review. Whereas conceptual framework took on the definition of major concepts, theoretical exposition as the main body of literature highlighted the specific objectives to put the study in the right perspective. As a quantitative design, Ordinary Least Square technique was applied to the time series annual data collected from the Central Bank of Nigeria Statistical Bulletin of various issues and World Development Indicators, a publication of the World Bank for all the variables (1980-2015). Both pre and post estimation tests confirmed that the normalized cointegrating equation is reliable and fit for any forecasting purposes. The normalized cointegrating coefficients were all significant at 0.05 level of significance. Major findings were that trade openness positively and significantly affect real gross domestic product to the extent that 1 percent increase in the index of openness will increase real gross domestic product by 1.57 percent while a unit increase in foreign direct investment will bring about 2.44 percent increase in real gross domestic product in Nigerian economy when other variables in the model are held constant. Others are that exchange rate has positive and significant effect on real gross domestic product as 1 percent increase in exchange rate leads to 2.66 percent increase in real gross domestic product, there is significant but negative relationship between inflation and real gross domestic product to the extent that 1 percent increase in inflation will lead to 0.12 percent reduction in real gross domestic product when other variables in the model are held constant. The study revealed also that interest rate has significant but negative effect in the model as 1 percent increase in interest rate leads to 0.11 percent decrease in real gross domestic product when other variables in the model are held constant. The value of the error correlation term shows that about 47.35 percent of the discrepancies between the actual and equilibrium real gross domestic product is corrected in each period (annually), such that in an event of short-run disequilibrium it can only take about one and half years for real gross domestic product to fully adjust to long-run equilibrium in the economy. Therefore, the study recommends among other things that the government and policy-makers should encourage trade liberalization by dismantling all restrictions and barriers to trade to enable the country benefit fully from its impact on economic growth.