AN EMPIRICAL ANALYSIS OF THE SHORT RUN AND LONG RUN IMPACT OF TRADE OPENNESS ON ECONOMIC GROWTH: EVIDENCE FROM NIGERIA

Bakari Wadinga
Volume 9 Issue 2

Abstract

The empirical study delves into the intricate relationship between trade openness and economic growth, with a focus on Nigeria's context. Drawing on neoclassical trade theories and endogenous growth models, the investigation seeks to discern the short-run and long-run impacts of trade openness on Nigeria's economic growth, while accounting for the role of exchange rates and interest rates. Utilising data from the World Development Indicators spanning from 1981 to 2021, the study employs an Autoregressive Distributed Lag (ARDL) approach to analyse the multifaceted dynamics. Descriptive analysis and correlation assessments are undertaken to provide foundational insights. The findings underscore the positive linkages between trade openness, economic growth, and technological diffusion. In the short run, the results reveal that an increase in trade openness leads to a positive effect on economic growth, albeit with differential magnitudes across variables. Similarly, the long-run analysis affirms the pivotal role of trade openness in sustaining economic growth, complemented by the importance of exchange rate stability and appropriate interest rate management. These empirical results resonate with theoretical underpinnings and align with prior studies, corroborating the notion that trade openness serves as a catalyst for knowledge spillovers, enhanced productivity, and sustainable economic development. In conclusion, this study advocates for a policy framework that enhances trade openness through reduction of barriers, while concurrently fostering human capital development and stable macroeconomic conditions. The implications of the research are manifold, urging policymakers to steer towards trade liberalization, invest in education and skills, and calibrate monetary policies judiciously. These recommendations are encapsulated within a comprehensive approach that envisions trade as a driving force for Nigeria's economic growth and broader development goals. Keywords: Trade Openness, Economic Growth, Nigeria, ARDL Analysis, Exchange Rates, Interest Rates.

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