Trade Taxes, Domestic Taxation, and Nigeria’s Global Value Chain Participation: Trends and Implications (1995–2024)

Abstract

Aims: Considering the dynamics between taxes and participation in the Global Value Chain (GVC) can serve as an aid to understanding how both variables interact to modify revenue structure and determine trade trends. In Nigeria, there is a dearth of studies undertaking this assessment because of the scarcity of country-based data on trade in GVC  generated using the Intercounty Interindustry Input-Output (ICIO) tables. This paper empirically examines the impact of GVC participation on trade and domestic taxes in Nigeria from 1995-2024; while at the same time considering the reverse effect, that is, the impact of trade and domestic taxes on GVC participation. Study Design: This study uses historical data from 1995-2024 calibrated under an ex-post facto research design. The study drew data from several local sources and estimated an econometric model using the Autoregressive Distributed Lag (ARDL) Bound Testing approach combined with the Pairwise Granger causality tests. Results: The result revealed that Nigeria’s participation in GVC does not necessarily drive trade and domestic taxes, though both taxes granger causes participation in GVC trade. It was further found that what is more likely to drive these taxes including GVC participation is the gross import of intermediate products transformed in the domestic economy. Conclusion: The conclusion is that policymakers should focus on tax reforms and value creation policies to attract or sustain engagement in global value chains, rather than assuming GVC involvement will independently enhance revenue or production structures.