Estimating the size of Nigeria's output connectedness with China, India and USA: a normalised generalised forecast error variance decomposition approach

Abstract

This paper investigated the size of Nigeria's output connectedness with China, India and USA, with particular focus on Nigeria's latest democratic era that began in 1999. The study used the normalised generalised forecast error variance decomposition (GFEVD) of the underlying vector error correction (VEC) model to construct the connectedness measures. The findings reveal that India and China are the largest contributors of spillover index in the system. Overall, the size of the connectedness index of the economies is 34.55%, which shows remarkable output spillovers among these countries. The policy implication of these results is that Nigerian economic authorities should closely monitor the output fluctuations around the world, especially those of Nigeria's top trade partners like India and China in order to mitigate adverse output shocks.