Empirical Analysis of The Growth Effects of International Trade in Nigeria

Abstract

This role of foreign trade in driving growth in the domestic economy and boosting the potential of a country to foreign exchange earnings has remained a subject of interest in economic literature, thus provoking investigation into the claim that international trade is growth-enhancing. This study centred on the impact of foreign trade on economic growth. The specific objectives of this study are to explore the effects of net export, exchange rate and government capital expenditure on economic growth. This study covered a period of 35 years (1980-2015) and the source of data for the variables is the Central Bank of Nigeria Statistical Bulletin. The error correction model (ECM) was utilized as a technique for data analysis. The Phillips-Perron unit root test shows that the variables are stationary upon first differencing. Thus, the series are integrated of order zero. The Johansen cointegration test result indicates that the variables are cointegrated. Therefore, this reveals that the variables have a long-run relationship. The cointegrating regression result shows that net export has a significant positive impact on economic growth. The exchange rate on the other hand is found to significantly and negatively influence economic growth. The long-run impact of government capital expenditure on economic growth is negative and insignificant. The Wald test for coefficient restrictions shows that net export, exchange rate and government capital expenditure are statistically significant in explaining changes in economic growth. Based on the findings, it is recommended that government should adopt trade policies that promote export and reduce the incidence of importing competing goods to ensure that Nigeria optimizes the benefits that foreign trade creates.