Disaggregated Analysis of Foreign Trade Impact on Economic Growth; Reflecting on the Nigeria Experience

Abstract

This study conducted a disaggregated analysis of foreign trade impact on economic growth using Nigeria historical data. The data used spans the period 1981-2017 on variables such as foreign trade decomposed into four components namely; oil import, oil export, non-oil import, and non-oil export. Others are GDP, aggregated government expenditure data and consumer price index. The variables were sourced from the Central Bank of Nigeria [CBN] Statistical Bulletin [latest edition] augmented with World Development Indicator [WDI], latest version and CBN Annual Report [various issues].  Models were formulated with and without recession dummy variable and estimated using (FMOLS) technique. Variables were tested and found to be non-stationary at level. They become stationary after first differencing, meaning that all variables exhibit a I[1] process. The group of I(1) variables were found to be cointegrated after testing for cointegration following a multivariate cointegration analysis proposed by Johansen and Juselius [20]. The result shows that non-oil trade has positive impact on growth while oil trade has negative impact on growth. The negative impact of oil trade declines marginally in recession period.  Both government expenditure and consumer prices have significant positive impact on economic growth. This study strongly recommends that government in her effort to diversifying and repositioning the Nigerian economy should give urgent attention to the non-oil sector in order to boost trade in this sector to enhance economic growth. The study therefore concluded that foreign trade impact on economic growth in Nigeria depends largely on the magnitude of foreign trade resulting from non-oil export.