The Impact of Trade Openness on Trade and Tax Revenues in Nigeria (1981-2018)

Abstract

The challenge to provide enough resources to fund infrastructure development has been the bane of most developing countries like Nigeria. The appropriate economic and trade policies to deploy to increase revenue generating capacity of the government become compelling. This study examined the impact of trade openness on trade and tax revenue in Nigeria between 1981 and 2018. The study employed Augmented Dickey Fuller and Phillip Peron tests to conduct the stationarity tests. Akaike Information Criterion and Final Predictor Error provided the best lag lengths. Johansen cointegration test was used to determine the long run relationship. The study employed Vector Error Correction Model for the regression analysis while T- test and F test were also done to confirm the statistical significance of the variables and the models. For autocorrelation problem, Breusch-Godfrey serial correlation LM test were conducted and other post- estimation tests were also used. The result of the study showed that trade openness was negatively related with total tax revenue and with trade tax revenue (CED). The results indicate that a unit increase in trade openness leads to 11.58% decrease in trade revenue from CED and 13.69% decrease in total revenue. Trade openness as a policy to increase tax revenue was not beneficial to the country. Trade openness should be adopted with manufacturing and productive sector orientation in mind. In addition, tariff rates should be reviewed, and the tax structure should be transparent, and judicious use of tax resources should be implemented by government.