The Impact of Trade Liberalization On Economic Growth in Nigeria.

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CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
There has been a huge increase in growth of world trade when compared to
that of world output due to trade liberalization. While world output has expanded
five folds, the volume of world trade has grown 16 times at an average compound
rate of over 7% per annum. Thus, trade performance re-enforces the understanding
of growth and development process of countries. Tariff rates have been reduced to
10% of the former rate since the end of the World War II, at the global level,
international trade increased by 17times, while global income increased by 4, and
income per capita doubled.
As seen in many countries, the principal motive of governments especially in
recent years has been to obtain high and sustainable economic growth so as to
prevail in a challenging world of trade relations (Manni and Afzal, 2012). In attaining
this principled goal, countries have embarked themselves in popular economic
policies that allow reduction and removal of barriers to trade such as tariffs, quotas
and import controls as to mention but three. Among many policies that most
countries including Nigeria have decided to opt-for is trade liberalization of
economies (Herath, 2010).

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Furthermore, countries with high trade performance have recorded higher
rates of GDP growth than others. Following from the above, it is obvious that trade is
essential in promoting, improving and sustaining the growth and development of
economies. This is why we need to examine the relationship between trade openness
and output growth in Nigeria. Today, as part of moving with the trend of
globalization and trade iberalisation in the global economic system, Nigeria is a
member of, and signatory to, many international and regional trade agreements such
as International Monetary Fund (IMF), World Trade Organization (WTO), World
Bank, Economic Community of West African States (ECOWAS), and others.
The overriding objective of this economic partnership on international trade
has been to create a free trade zones by removing the barriers on trade, lessen tariffs,
and embark on outward-oriented trade policies. Despite Nigeria’s great attempt to
meet up with the demands to these economic partnerships, as reflected in the 2007
assessment of trade policy review, Nigeria’s trade freedom was rated 56% making
her the worlds 131st freest economy while in 2009, it was ranked 117th freest
economy, the country’s GDP was also ranked 161st in the world in February, 2009.
The economy has thrived to arouse growth through openness trade; in reality,
it seems that as the country put greater effort to boost her economic growth by
opening up to trade with the global economy the more she becomes worse-off
relative to her trading partners in terms of country output growth.

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International trade which is also called foreign trade is concerned with buying
and selling or the exchange of goods and service that take place across national
boundaries. At least two countries should be involved in the activities, that is, the
aggregate of activities relating to trading between merchants across borders.
Traders engage in economic activities for the purpose of the profit maximization
engendered from differentials among international economic environment of nations
(Adedeji, 2006). International trade has double components which include export
and import. The concept of export is that version of international trade that attracts
earns which can be used for economic growth and development. On the other hand,
the concept of import is one of the branches of international trade that facilitates
payment of the purchased goods and services. Economic growth is an increase in the
capacity of an economy to produce goods and services, compared from one period of
time to another.
1.2 Statement of Problem
Trade is often considered the engine of development strategies in any nation
because it can create jobs, expand market, raise income, facilitate competition and
disseminate knowledge. Trade liberalization is seen as the removal of obstacles of
free trade such as tariffs and quota.
Trade openness has a drawback to economic growth because some goods
imported into the country were those that caused damage to local industry by
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making their product inferior and being neglected by the consumers of such goods
and services, this thereby reduces the growth rate of output of such industries.
1.3 Research Questions
In the course of this research work, the researcher raises some research questions,
in which an attempt to answer such questions will bring solution to the problems
associated with trade openness in Nigeria.
1. What is the impact of trade liberalization variables on the economic growth in
Nigeria?
2. What is the causality relationship between trade liberalization variables and
Economic growth in Nigeria?
1.4 Objectives of the Study
The broad objective of this study is to find out the impact of trade liberalization
on economic growth in Nigeria. Specifically, the study intends
1. To determine the impact of trade liberalization variables on the economic
growth in Nigeria.
2. To determine the direction of causality between trade liberalization variables
and the economic growth in Nigeria.

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1.5 Hypotheses of the Study
This research study will be conducted with a view to testing the following
hypothesis:
1. Ho: Trade liberalization variables have no significant impact on economic
growth in Nigeria.
2. H0: Trade liberalization variables have no directional causality relationship with
the economic growth in Nigeria.
1.6 Significance of the Study
The role of international trade in the developmental journey of an economy
cannot be over emphasized, especially with the current trend of globalization.
Nigeria. Being part of the global village is not left out of this world development. This
research work is carried out to study how trade liberalization has influenced the
performance of the Nigeria economy through output growth in the presence of other
internal and external shocks. It will help the government to see the effectiveness of
trade liberalization policy on the economic growth of the nation over the years.
This research work will further serve as a guide and provide insight for future
research on this topic and related field for students who are willing to improve it. It
will also educate the public on various government policies as related to trade issues.
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1.7 Scope and Limitation of the Study
This research work of trade liberalization on Nigeria economic growth spread
through the period of 1986-2017, and is within the geographical zone of Nigeria.
This research exercise, like every other research work, is really a rigorous one
that consumes much time and energy especially in the area of data sourcing, data
computation and modeling. Nevertheless, the researchers have properly organized
the research so as to present dependable results which can aid effective policy
making and implementation at least for the time being.

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CHAPTER TWO
LITERATURE REVIEW
2.1 Conceptual Literature
2.1.1 Concept of Trade Liberalization
Trade liberalization deals with the increasing breakdown of barriers and the
increasing integration of the World market (Fafowora, 2000). In the works of
Derossa, (2000), trade liberalization was referred to as the increasing international
integration of international market for goods, tradable service and financial assets. In
the real sense, it is also referred to the increasing integration of markets for major
inputs to production, not only mobile physical capital but also labour in its various
forms: basic labour, skilled labour and other professional services.
Trade liberalization offers countries access to the global market which affords
people greater opportunity to tap more and larger market around the World, giving
them access to more capital flow, technology, cheaper import and larger export
markets. It equally exposes countries to new ideas, products, and economies of scale
in production and makes them gain efficiency in utilization of production resources
(Adenikinju and Chete, 2003). However, a more integrated World economies is
prone to some adverse consequences equally as it relates to financial management,
environmental degradation and pace of development. Also, trade liberalization opens
an economy to some financial crisis (UNEP, 2001).

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Trade liberalization is the removal or reduction of restrictions or barriers on
the free exchange of goods between nations. This includes the removal or reduction
of tariff obstacles, such as duties and surcharges, and nontariff obstacles, such as
licensing rules, quotas and other requirements. The easing or eradication of these
restrictions is often referred to as promoting "free trade."
2.1.2 Concept of Import
An import of a good occurs when there is a change of ownership from a non-
resident to a resident; this does not necessarily imply that the good in question
physically crosses the frontier. However, in specific cases national accounts impute
changes of ownership even though in legal terms no change of ownership takes place
(e.g. cross border financial leasing, cross border deliveries between affiliates of the
same enterprise, goods crossing the border for significant processing to order or
repair). Also smuggled goods must be included in the import measurement.
Imports of services consist of all services rendered by non-residents to
residents. In national accounts any direct purchases by residents outside the
economic territory of a country are recorded as imports of services; therefore all
expenditure by tourists in the economic territory of another country are considered
part of the imports of services. Also international flows of illegal services must be
included.
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2.1.3 Concept of Export
An export is a function of international trade whereby goods produced in one
country are shipped to another country for future sale or trade. The sale of such
goods adds to the producing nation's gross output. If used for trade, exports are
exchanged for other products or services in other countries.
Exports are one of the oldest forms of economic transfer and occur on a large
scale between nations that have fewer restrictions on trade, such as tariffs or
subsidies. Most of the largest companies operating in advanced economies derive a
substantial portion of their annual revenues from exports to other countries. The
ability to export goods helps an economy to grow, by selling more overall goods and
services. One of the core functions of diplomacy and foreign policy within
governments is to foster economic trade in ways that benefit both parties involved.
Exports are a crucial component of a country’s economy. Not only do exports
facilitate international trade, they also stimulate domestic economic activity by
creating employment, production and revenues (yourarticlelibrary, 2017).
2.1.4 Concept of Exchange rate
Conceptually, Exchange rate is the rate at which a currency is exchanged for
another currency. It can also be said to be the price of one country’s currency in
relation to another country. It is the required amount of units of a currency that can
buy another amount of units of another currency. It is referred to as the ratio at
which a unit of currency of one country is expressed in terms of another currency.

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According to Jhingan (2004), the exchange rate between the dollar and the
pound refers to the number of dollars required to purchase a pound. The rate is
normally determined in the foreign exchange market. The foreign exchange market
is a market where currencies of different countries are bought and sold. It is a
market where the values of local and foreign currencies are determined. As noted by
Jhingan (2004), the national currencies of all countries are the stock-in-trade of the
foreign exchange market, and as such, it is the largest market to be found around the
world which functions in every country.
2.1.4 Concept of Trade Openness
Trade openness is a measure of economic policies that either restrict or invite
trade between countries. For example, if a country sets a policy of high trade tariffs
thus restricting the desirability of international trade, thus restrictive policy will
inhibit other countries from sending exports and accepting imports from other
countries. According to dominating economic theory, this restrictiveness or lack of
trade openness, will have an economic effect of slowing economic
development/growth (garett, 2001). Conversely, according to economic theory,
trade openness will have an economic effect of increasing economic development
and growth.
According to jin (2002) trade openness is the removal or reductio0n of
restriction or barriers on free exchange of goods and services between nations. This
includes the removal or reduction of tariff obstacles, such as duties and surcharges,
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and nontariff obstacles, such as licensing rules, quotas and other requirement. The
easing or eradication of these restrictions is often referred to as “promoting free
trade”.
2.1.5 Concept of Economic Growth
According to Balami (2006) Economic growth which is always proxy by GDP
often conceptualized as increase in output of an economy’s capacity to produce
goods and services needed to improve the welfare of the country’s citizens. Growth is
seen as a steady process which involves raising the level of output of goods and
services in the economy. Growth is meaningful when the rate of growth is much
higher than population growth because it has to lead to improvement in human
welfare. Therefore, growth is seen as a steady process of increasing the productive
capacity of the economy and hence, of increasing national income, being
characterized by higher rates of increase of per capita output and total factor
productivity, especially labours productivity.
According to Fajingbeji and Odusola (1999) though economic growth is
associated with an increase in capital per head, capital is not the only requirement
for growth. Thus, if capital is made available without, at the same time, providing a
framework for its use, it will be wasted.

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2.2 Theoretical Literature
2.2.1 Trade Theories
2.2.1.1 Mercantilist Trade Theory
They have the submission that the key way for a nation to become rich and
powerful is when its export is greater than import. They believed that trade has to be
controlled, regulated and restricted in the form of tariffs, quota and other
commercial policies. They believe the wealth of nation is defined by the total silver
and good the country is able to posses and a formidable army to protect the country
from external aggressions.
2.2.1.2 Absolute Advantage Trade Theory
The theory favour free trade through specialization in the production of those
commodities in which it could produce less efficiently in lower absolute cost
advantage. The same country should import a commodity in which it has higher
absolute cost disadvantage. This will lead to increase in the world output. Adam
Smith developed his theory of international trade in a realistic manner in which he
attacked the mercantilist’s views on what constituted the wealth of nation and what
contributes the increasing wealth and welfare of nations. His theory of international
trade is called the Absolute Advantage Theory.
The economists of classical school badly criticized the doctrines of
Mercantilism and favoured free trade which benefited all the trading countries.
Adam Smith advocated the Laissez fair economic policy. He argued that the wealth of
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nation would expand rapidly if the government would check the mercantilist
controls over foreign trade. Smith also pointed out one of mercantilist myth that in
international trade only one country can gain at the cost of other countries. He
stressed his theory mostly on the division of labour in which he assumes that every
person would get skilled in his particular field if the division of labour implemented
consciously. He also said that everyone will get better off without making any one
worse off. Smith model of world trade is as peace model among the countries of the
world in which free trade and honesty being the basic contents of the model made it
most preferable and productive also.
2.2.1.3 Comparative Advantage Trade Theory
This is credited to David Ricardo (1772-1823). He was of the opinion that
country should specialize in producing and exporting only those goods and services
it can produce more efficiently at lower opportunity cost than other goods and
services it can import. Country should concentrate on those product in which it has
the maximum comparative advantage and the least comparative cost. After taking
the great concern of the Absolute Advantage theory of Adam Smith, David Ricardo
opposed the analysis of Adam Smith Theory of Absolute Advantage which is also
known as the Ricardian theory of comparative cost in which he argued that even the
countries does not have absolute advantage in any line of production over the other,
international trade would be beneficial, bringing gains from trade to all the
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participating countries. Comparative cost advantage model is a refinement of Smith’s
theory.
In this respect the model of comparative advantage is quite similar to absolute
advantage model but only the difference is that in the comparative advantage model
is that if the one country is either efficient in producing both the commodities and
the other country is inefficient in producing both the commodities as compared to
the first. Still the trade can benefit both the countries on the basis of cost of
production which is not described in the Absolute Advantage model.
2.2.1.4 Neo-Classical Theory of International Trade
The Neo-classical model of International Trade came to advocate the Theory
on some basic and real concepts by which the theory can be extended up to longer
and the mystery of trade can be understandable by the help of some of the concepts
which are thoroughly discussed by the Neo-classical.
The Neo-Classical started their theory with the basic concepts like opportunity
cost and production possibility frontier. Then especially the economists like,
Haberler, Leontief, Lerner Marshall, Edgeworth and Meade had contributed for the
Neo-classical model of international trade and analysed the previous theories of
trade and tried to modify the theories then after and have made their model more
comprehensive and applicable to all returns to scale conditions in production.

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2.2.1.5 The Opportunity Cost Approach
The Haberlers theory of opportunity cost is the restatement of Ricardo’s
theory of comparative costs in terms of the opportunity cost. A remarkable attempt
has been made by Haberler to reformulate the theory of comparative cost advantage.
Therefore the theory can be also said the alternate cost theory.
According to the opportunity cost theory if a country can produce either of the
commodity x or y, the opportunity cost of the community x is the amount of other
community y that must be given up in order to get one additional unit of community
x. Thus the exchange ratio between the two commodities is expressed in terms of
their opportunity costs.But of despite of that comparative cost theory has been based
upon the labour theory of value. This means that the value of the commodity is equal
to the amount of labour time involved in the production of that commodity which
means that according to the Ricardo’s theory that labour is the only factor of
production of the commodity, that there is homogeneity in the labour and labour is
used in the fixed same proportions in the production of all the commodities.
Haberler’s opportunity cost theory1overcome these short comings and
explains the doctrine of comparative cost in terms of what call the substitution curve
or what Samuelson terms ‘Productive Possibility curve or ‘Transformation curve’ or
what Lerner calls ‘Production indifference curve’ or Production Frontier.
Some of the important assumptions have been made by Haberler are as under:
1. Only two countries say A and B took place in trade according to this theory.
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2. Two commodities and two factors of production (labour and capital are taken).
3. The supply of Factors is fixed.
4. There is full employment.
5. Free trade exists between the two countries.
6. The price of each factor equals its marginal value productivity in each
employment.
Under these heavy gains from trade can be determined by the different cost
conditions, the trade under constant opportunity cost, the trade under increasing
opportunity cost and the trade under decreasing opportunity cost.
2.2.1.6 Modern Theory of International Trade
The classical theory of international trade bitterly criticized by Bertil ohlin in
his famous book ‘Interregional and International Trade’ (1933) and then formulated
the General equilibrium or factor Endowment theory of International trade. It is also
known as the modern theory of International trade or the Hecksher-Ohlin (H.O)
Theorem. It was in fact the Ohlin teacher Eli Hecksher who very first proposed the
idea in 1919 that the trade in a result in the difference in factor endowments in
different countries and then Ohlin carry the theory forward to build the theory of
modern international trade.
According to this theory the Relative availability of factor supplies mainly
determines the pattern of production, specialization and trade among the regions.
Different countries or the different Regions lane the different factor endowments and
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supplies of factors. Some countries are abundant in capital and some have much
labour in them. Now the theory says that the countries that are rich in capital will
export capital intensive goods and the countries which have much labour will export
labour intensive goods.
According to Ohlin the main cause of trade between the Regions is the
difference in prices of the commodities. He admitted that the trade like situation
came into forefront only after when we analyse that some commodities can be
brought very easily inside the country whereas the some are very difficult to produce
even at the very high prices. Thus the trade proves to be quite beneficial for the
trading countries, as per this theory also on its realistic assumptions.
The following assumptions have been made in order to simplify the statement
of the Heckscher-Ohlin theorem.
1. The model is carried up by the two countries, two commodities and the two factors
of production (labour and capital).
2. In commodity and factor markets there exists the perfect competition.
3. The production functions are different for different commodities.
4. Each commodity is produced by the constant returns to scale.
5. Transport and Insurance costs are free.
6. There is an immobility in the factors of production between the countries but
freely mobile within the countries.
7. There is full employment of both the factors of production in each country.

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8. The theory openly advocates the free trade between the two countries.
9. The technological knowledge remains unchanged.
10. Identical Demand Patterns and Preferences of consumers in both the countries.
The Heckscher-Ohlin theorem can be discussed on the two main basis are, the
factor abundance (or scarcity) in terms of the Price criterion: and the factor
abundance (or scarcity) in terms of physical criterion. Any how the classical and
modern theories of international trade lead us towards the meaningful concepts of
international trade but both the classical and modern concepts of trade are
diagnosed by several limitations.
2.2.2 Theories of Economic Growth
2.2.2.1 The Classical Theory
The classical theory of economic growth was a combination of economic work
done by Adam Smith, David Ricardo and Roberth Mathus in the eighteenth and
nineteenth centuries.
The theory states that every economy has a steady state GDP and any deviation
off of that steady state is temporary and will eventually return. This is based on the
concept that when there is a growth in GDP, population will increase. The increase in
population has an adverse effect on GDP due to the higher demand on limited
resources from larger population. The GDP will eventually lower back to the steady
state, population will decrease and thus lower demand on the resources. In time, the
GDP will rise back to this steady state.

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2.2.2.2 The Neo-classical Theory
This theory is known as the Solow-swan growth model. The theory was
developed by two economist named T.W Swan and Robert Solow. The theory focuses
on three factors that impact the economic growth namely labour, capital and
technology. The theory sates that the output per worker but at a decreasing rate.
This is referred to as diminishing marginal returns. Therefore at a point, labour and
capital can be set to reach an equilibrium state. Since a nation can theoretically
determine the amount of labour at that steady point. It is technological advances that
really makes impact on economic growth.
2.2.3 Nigeria Trade policies and Economic Growth
Nigeria’s tariff policy is mostly governed by the recently revised African States
(ECOWAS). Initially adopted in 2005, the four bands CET with a maximum rate of 20
percent, was revised in June 2009 to include a fifth band of 35 percent, primarily at
the behest of Nigeria. Nigeria applies the 35 percent rate to 167 (of 5,671) tariff line
items, and the new CET covers about 80 percent of the country’s tariff lines that had
non-zero import values in 2008, besides tariff barriers, Nigeria has a long list of
prohibited imports (and a shorter list of prohibited exports), making smuggling
prevalent in the country. Smuggled imports typically enter Nigeria from its regional
neighbours (Benin, Niger, Cameroon, and Chad).
In September 2008, the trade regime was amended to lower tariffs for a wide
range of goods and replaces a number of import bans by tariffs. Based on the
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country’s latest (2006) MFN Tariff Trade Restrictive Index (TTRI) of 11.4 percent, it
ranks 98th (where 1st is least restrictive) of 125 countries. Based on this index,
Nigeria is as open to trade as the average sub-saharan African (SSA) country but is
more restrictive than the average lower-middle-income country (TTRI of 8.6
percent). With the government’s aim of enhancing food security, the agricultural
sector is afforded a high level of tariff protection (TTRI of 28 percent) compared to
the non-agricultural sector (TTRI of 8.5 percent).
The country’s average MFN applied tariff (including and volorem equivalents
of specific duties) has decreased dramatically from the late 1990s and early 2000s
when it was well over 20 percent and now stands at 12 percent. The maximum
applied MFN tariff (excluding alcohol and tobacco) has also decreased in the last
decade and was 50 percent as of 2008. The country’s trade policy space, as measured
by the wedge between bound and applied tariffs (the overhang), is very large at
106.4 percent, compared to 48.1 percent on average for its regional neighbours and
29.5 percent for lower-middle income countries. The country ranks 91st (out of 148)
on the GATS commitments index, reflecting ample room for committing to further
multilateral liberalization in services trade. Faced with high food prices in 2008, the
government drastically lowered the import tax on rice from 100 percent to 2.7
percent and allocated a special fund for rice imports to fight food shortages.
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2.3 Empirical Literature
In examining the relationship and impact of trade on growth of economies
especially in developing countries, many researchers have done their job.
Herath (2010) examined impact of trade liberalization on economic growth of
Sri Lanka. In identifying the impacts of trade liberalization on growth and trade
balance, data were collected on a specific time interval before and after the trade
liberalization. The time period selected was from 1960 to 2007. Using regression
analysis and Chow test to the variables, findings of the study confirmed a significant
positive relationship between trade liberalization and economic growth of Sri Lanka.
The result of Chow test proved a clear change of economic growth before and after
trade liberalization of the country.
Parikh and Stirbu (2004) they examine the impact of trade liberalization on
economic growth for 42developing countries of Asia, Africa, and Latin America for
the period 1990-1999 in three regions. These relationships suggest that the
liberalization promotes growth, but the growth has a negative effect on the trade
balance for a large majority of countries. The country-by-country regression
indicates that the liberalization contributes positively to growth in African
economies.
In the same context, Mattoo et al. (2006) empirically examine the impact of
liberalization of service sectors on output growth. Their analyses were based on
telecommunications and financial services as a measure of openness. The result of

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the findings shows that the impact of liberalization in the financial sector is less
strong, but statistically significant, while for the telecommunications sector, the
effect of openness in services influences long run growth performance.
Stabua Abdul Babiker (2014), investigated the Impact of Trade Liberalization
on Economic Growth in Tanzania. The study adopted a simple linear regression
model where real GDP was the dependent variable while trade openness was the
independent variable. Annual time series data was used covering the period 1970-
2010. This overall period was then subdivided into a closed economy period (1970-
1985) and a open economy period (1986-2010). OLS technique was used to estimate
the regression model twice, regarding the two sub-periods. The empirical findings
indicated that trade openness had a positive and significant effect on economic
growth in Tanzania. However, this effect was relatively greater during the closed
economy compared to the open economy period. It has been indicated that since late
1980s Tanzania experienced continuous trade deficits in her accounts. This has been
the contributing factor in the obtained results. Thus, the study recommended that
there is a need for the country to put strong initiative on adding value on her exports
so as to compensate for imports.
Mani and Munshil (2012) assessed the impact of trade liberalization on
Bangladesh economy between the periods 1980 to 2010. This research analyzes the
achievements of the economy in terms of important variables such as growth,
inflation, export and import after trade liberalization. The paper uses simple
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Ordinary Least Square (OLS) technique as methodology for empirical findings. The
analysis clearly indicates that GDP growth increased consequent to liberalization.
Trade liberalization does not seem to have affected inflation in the economy. The
quantitative analysis also suggests that greater openness has had a favourable effect
on economic development. Both real export and imports have increased with greater
openness. Liberalization policy certainly improves export of the country which
eventually leads higher economic growth after 1990s. The findings of this study can
be an interesting example for trade liberalization policys tudy in developing
countries.
Sarkar (2005) empirically examined whether or not trade liberalization
stimulated economic growth in India and Korea for the period 1956-1999 for India
and 1956-2001 for Korea. In applying the ARDL co-integration methodology, he
concluded there is no positive long-term relationship between trade openness and
economic growth in India and Korea. In the same vein, Sarkar (2008) conducted an
empirical research to show the relationship between trade liberalization and
economic growth using a cross-country panel data analysis of a sample of 51 less
developed countries for the period 1981-2002. The results of the study show a
positive relationship between trade liberalization and economic growth, which
suggests that a country with a higher trade share, tends to experience a higher real
growth.
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Chuhdhary et al (2010) analyzed the causality between trade liberalization,
human capital and economic growth in Pakistan. Granger causality is used for
estimation. Results of this study revealed that in long run relationship between
economic growth human capital and trade liberalization is significant and positive
while in short run labor force also significantly contribute in growth.
Mario (2011) investigated the causality between productivity and exports using
quarterly data for the period between 1975 and 2009. The result indicated no causal
link from export to productivity.
Jung (2013) used time series data to perform Granger causality tests between
export and growth for 37 developing countries. The results provided evidence in
favour of export led growth in only four instances. The result showed that the export
promotion hypothesis is weaker than what previous statistical studies have
indicated.
Lin (2015) explored the relationship between trade and economic growth
based on china’s national data for the period of 1978-2009, using correlation
coefficient and vector error correction model. He found that growth rate of imports
and the growth rate of the volume of trade are positively related to growth of per
capita GDP.
Dow Rick (1994) tests whether trade openness affect output growth by
considering 74 countries using ordinary least square cross country regression. The
result indicates that the coefficient of openness is significant and positive.

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CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
3.1 Research Design
The study adopted ex-post facto research design- the ordinary least square
technique was employed in obtaining the numerical estimates of the coefficient
parameters, the OLS is chosen because of its BLUE (best linear unbiased estimator)
properties, according to (Gujarati 2009) OLS method have some very attractive
statistical properties that have made it one of the best and most powerful method of
regression. It is intuitively appealing and mathematically much simpler than any
other econometric techniques. E view 8.0 regression software package is employed
in this analysis to test non violation of the basic assumption of the OLS model.
3.2 Theoretical Framework

The Absolute Advantage theory favour free trade through specialization in the
production of those commodities in which it could produce less efficiently in lower
absolute cost advantage. The same country should import a commodity in which it
has higher absolute cost disadvantage. This will lead to increase in the world output.
This theory is the most suitable for this work.
.
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3.3 Model Specification
The functional form of the model is specified as follows.
RGDP= F (OPN, IMPT, EXPT, EXR, FDI) 3.1
The econometric form of the model is as follows
RGDP = βo + β1OPN + β2IMPT + β3EXPT + β4EXR + β5FDI 3.2
RGDP= Real Gross Domestic Product i.e. (constant price GDP)
F = Functional relationship
OPN = Trade Openness
IMPT = Import
EXPT = Export
EXR = Exchange rate
FDI = Foreign Direct Investment
βo = Benchmark (RGDP Intercept)
β1 = Coefficient of openness to be estimated
β2 = Coefficient of import to be estimated
β3 = Coefficient of export to be estimated
β4 = Coefficient of exchange rate to be estimated
β5 = Coefficient of foreign direct investment to be estimated
µ= unpredictable random variable
β1 >0, β2<0, β3>0, β4>0, β5>0

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3.4 Method of Evaluation
The estimated result will be evaluated in subject to four criteria;
1. Preliminary Test
2. Economic Test of Significance (A Priori Test)
3. Statistical Test of Significance ( First Order Test)
4. Econometric Test of Significance ( Second Order Test)
3.4.1 Preliminary Tests
3.4.1.1 Stationarity (Unit Root) Test: The importance of this test cannot be over
emphasized since the data to be used in the estimation are time-series data. In order
not to run a spurious regression, it is worthwhile to carry out a stationary test to
make sure that all the variables are mean reverting, that is, they have constant mean,
constant variance and constant covariance. In other words, that they are stationary.
The Augmented Dickey-Fuller (ADF) test would be used for this analysis since it
adjusts for serial correlation.
∆Yt=∂Yt-1+ᵅi∆Yt-1+Ut - - - - - - - - 3.3
Decision Rule:
If the ADF test statistic is greater than the MacKinnon critical value at 5% (all
in absolute term), the variable is said to be stationary. Otherwise it is non stationary.

28
3.4.1.2 Co-integration Test: Econometrically speaking, two variables will be co-
integrated if they have a long-term, or equilibrium relationship between them. Co-
integration can be thought of as a pre-test to avoid spurious regressions situations
(Granger, 1986). As recommended by Gujarati (2004), the ADF test statistic will be
employed on the residual.
∆ût= α0 + α1ut-1 + ut ------------------------------------------------------------------- 3.4
Decision Rule:
If the ADF test statistic is greater than the critical value at 5%, then the
variables are co-integrated (values are checked in absolute term).
3.4.1.3 Error Correction Mechanism: If there exist a long run relationship (co-
integration) among the time series variables, the Error correction mechanism will be
estimated to know the rate at which the dependent variable returns to equilibrium to
the independent variable after some levels of variations i.e to derive the numerical
value of the magnitude of the short run dynamics or disequilibrium. Error correction
models are theoretically driven approach useful for estimating both short-term and
long-term effects of one time series on another. The term error-correction relates to
the fact that last-periods deviation from long-run equilibrium, the error, influences
its short-run dynamics.
∆RGDP = β0 + β1∆OPNt + β2∆IMPt + + β3∆EXPt + β4∆EXR+ β5∆FDIt +β6∆µt-1 + µt …………… 3.5

29
Decision Rule: In conducting ECM, the expected sign of the result should be
negative. A positive ECM implies a model misspecification or an indication of
structural changes and will not give us the rate of these change in the dependent and
independent variables.
3.4.2 Economic Test of Significance (A Priori Test)
These are determined by the principles of economic theory and refer to the sign and
size of the parameters of economic relationship.
The expected signs for the parameters associated with the various variables are
shown below
Table 3.1 A priori Expectation
Table 3.1 A priori expectation
Variables Expected Signs
Trade Openness (OPN) +VE
Import (IMPT) -VE
Export (EXP) +VE
Exchange Rate (EXR) +VE
Foreign Direct Investment (FDI) +VE

30
3.4.3 Statistical Test of Significance (First Order Test)
These are determined by the statistical theory and aimed at evaluating the
statistical reliability of the estimates of the parameters of the model, the most widely
used statistical criteria is the square of correlation coefficient (coefficient of
determination R2), T-Test and F-Test of significance.
3.4.3.1 Test for Goodness of Fit
The coefficient of multiple determinations (R2) is used to determine the
proportion of variation dependent variable that is attributable to variation in
explanatory variable. The value of R2 ranges between 1 and 0 (ie 0≤R2≤1). The closer
to 1 the better the fit, otherwise the worse the fit.
3.4.3.2 t-Test of Significance
The student t-ratio will be used to test the individual statistical significance of the
regression co-efficient. A two-tail test is conducted at 5% level of significance and n-k
degree of freedom (df), where n is the number of observation and K is the number of
parameter(s) estimated.
Decision Rule:
The computed (t*) will be compared with the critical t-value (t 0.025). If t*>t0.025, the Ho
will be rejected and H1 will be accepted. Otherwise, Ho is accepted and H1 rejected.

31
3.4.3.3 f-Test of Significance
f-test statistics is used to test the overall statistical significance of the
independent variables. A one-tail test will be conducted at 5% level of significance
and (V1/V2) degrees of freedom. Where;
V1= degree of freedom (df) for the numerator: v1=k-1.
V2= degree of freedom (df) for the denominator: v2=n-k.
Decision Rule:
If the computed f-ratio (f*) is compared with the critical f-ratio (f 0.05 ). If f*>f0.05, we
will reject the null hypothesis and accept the alternative, otherwise, the alternative
hypothesis H1 will be rejected and null hypothesis H0 be accepted.
3.4.4 Econometric Test of Significance (Second Order Test)
3.4.4.1 Autocorrelation Test: Autocorrelation Test: The aim of this test is to
examine whether the errors corresponding to different observations are serially
correlated or not. Uncorrelated errors are desirable. The Durbin – Watson (D-W)
statistics at 5% will be used to test for the presence of autocorrelation problem. The
region of no autocorrelation remains:
du< d* < (4-du)
Where:
du = Upper Durbin – Watson
d* = Computed Durbin-Watson
32
Decision Rule:
If the computed value of Durbin-Watson lies within the no autocorrelation
region, it means there is no presence of autocorrelation problem. But if the Durbin-
Watson computed value lies outside the regions there is the presence of
autocorrelation problem. If it occurs, to avoid the spurious regression associated
with it, we will employ the Durbin Watson Autocorrelation Correction to remove its
influence in the model.
3.4.4.2 Granger Causality Test: Although regression analysis deals with the
dependence of one variable on the other, it does not necessarily imply causation. In
other words, the existence of a relationship between variables does not prove
causality or the direction of influence (Gujarati, 2004). The essence of causality
analysis, using the granger causality test, is to actually ascertain whether a causal
relationship exists between two variables of interest. Here is the Granger
specification model:
i=n i=n i=n i=n i=n i=n
RGDPt =B o+ ∑ B 1 IMP t−1 +∑ B 2 exp t−2 ∑ B3 TOPi=3 ∑ B 4 EXR i=4 ∑ B5 FDI i=5 ∑ B6 RGDP i=6 + µ
i=1 i=2 i =3 i=4 i=4 i=5
i= p i= p i= p i= p i=n i=n
IMP t=ʎ o + ∑ ʎ 1 IMPt −1+ ∑ ʎ 2 expt −2 ∑ ʎ 3 TOPi=3 ∑ ʎ 4 EXR i=4 ∑ B5 FDI i =5 ∑ B6 RGDP i=6 + µ
i=1 i=2 i=3 i=4 i=4 i=5
i=k i=k i=k i=k i=n i=n

expt =α o + ∑ α 1 exp t−1 + ∑ α 2 IMP t−2 ∑ α 3 TOPi=3 ∑ α 4 EXR i=4 ∑ B5 FDI i=5 ∑ B6 RGDPi=6 + µ
i=1 i=2 i=3 i= 4 i=4 i=5
i= z i=z i=z i= z i=n i=n

TOPt =β o + ∑ β 1 TOP t−1+ ∑ β 2 IMP t−2 ∑ β3 exp ∑ β 4 EXR i=4 ∑ B 5 FDI i=5 ∑ B6 RGDP i=6+ µ
i=1 i=2 i=3 i=4 i= 4 i=5
i=G i=G i=G i=G i=n i=n

EXR t =π o+ ∑ π 1 EXR t−1 + ∑ π 2 IMPt −2 ∑ π 3 expi=3 ∑ π 4 TOPi=4 ∑ B5 FDI i=5 ∑ B 6 RGDPi=6 + µ
i=1 i=2 i=3 i=4 i=4 i=5
33
i=G i=G i=G i=G i=n i=n

FDI t =π o+ ∑ π 1 FDI t −1 + ∑ π 2 IMPt −2 ∑ π 3 expi=3 ∑ π 4 TOPi=4 ∑ B5 EXRi=5 ∑ B6 RGDP i=6 + µ
i=1 i=2 i=3 i=4 i=4 i=5
Decision Rule:
If computed f-value is greater than 5% critical value, then there exist a causal
relationship between both variable (values are checked in absolute term).
3.5 Data Required and Sources
The data required for this study are secondary time series data on import
(IMPT), export (EXPT), trade openness (TOP), Exchange rate (EXRT) and real gross
domestic product (RGDP) ranging from 1986-2017. The data are extracted from the
2017 editions of the Central Bank of Nigeria statistical bulletin.
3.6 Econometrics Package Used
E view 8.0 regression software package is employed in this analysis.
CHAPTER FOUR
34
PRESENTATION AND ANALYSES OF RESULT
This chapter will analyze the results using various economic, statistical and
econometric tests. Thus, the earlier posted hypothesis of this study will be tasted
based on the empirical results.
4.1 The Empirical Results
As the performance of theoretical postulation is no guarantee, but only an
indicator of what we may expect in practice, empirical testing of the time series data
of the variables is absolutely necessary.
4.1.1 Unit Root Test Results
The Augmented Dickey-Fuller (ADF) was used to test for the unit root in the
individual variable. The test was done based on the following hypothesis;
H0: variable is non-stationary
H1: variable is stationary
The results from the Augmented Dickey-Fuller test for unit root are
summarized below.
Table 4.1: ADF Test for Unit Root

35
VARIABLES ADF test 5% critical Value Order of

Statistics integration
RGDP -5.162193 -1.952473 I(1)
EXP -4.310802 -1.952910 I(1)
IMP -3.631182 -1.952066 I(0)
OPN -9.934259 -1.952473 I(1)
EXR -2.498571 1.952910 I(2)
FDI -9.386051 -1.952473 I(1)
From the tabular illustration, RGDP, EXP, OPN and FDI are stationary at first
difference I(1) while IMP is stationary at level form I(0), whereas EXR is stationary at
second difference I(2). Not having a stationarity time series data indicates not having
a short run relationship among the individual time series data, this result is expected
since most macroeconomic time series data are known to exhibit such behavior.
Since not all our variables are non-stationary at level form, there is need to
conduct a co-integration test. The essence is to show that although all the variables
are non-stationary, the variables may have a long term relationship that is, and the
variables may be co-integrated and will not produce a spurious result.
4.1.2 Cointegration Test Result

36
According to (Gujarati 2004) a regression involving non-stationary time series
variables will produce a spurious (non-meaningful) result. But if such variables are
co-integrated, having long run relationship, the result will therefore be acceptable.
Econometrically speaking, two variables will be co-integrated if they have a long run
equilibrium relationship between them (Gujarati, 2004:822)
To test for co-integration among the variables, we will carry out ADF test on
the regression residuals as proposed by Gujarati (2004). The ADF unit root test on
the residuals work with the same decision rule as unit root test.
The co-integration test result is summarized as follows:
Table 4.2: Co-integration Test Result

37
Null Hypothesis: ECT has a unit root

Exogenous: None
Lag Length: 0 (Automatic - based on SIC, maxlag=7)
t-Statistic Prob.*
Augmented Dickey-Fuller test statistic -5.285625 0.0000

Test critical values: 1% level -2.647120
5% level -1.952910
10% level -1.610011
*MacKinnon (1996) one-sided p-values.
Augmented Dickey-Fuller Test Equation

Dependent Variable: D(ECT)
Method: Least Squares
Date: 08/18/18 Time: 23:57
Sample (adjusted): 1989 2017
Included observations: 29 after adjustments
Variable Coefficient Std. Error t-Statistic Prob.
ECT(-1) -0.998944 0.188993 -5.285625 0.0000
R-squared 0.499444 Mean dependent var 1616.591

Adjusted R-squared 0.499444 S.D. dependent var 1828187.
S.E. of regression 1293442. Akaike info criterion 31.01739
Sum squared resid 4.68E+13 Schwarz criterion 31.06453
Log likelihood -448.7521 Hannan-Quinn criter. 31.03215
Durbin-Watson stat 1.999834
From the result above, the ADF test statistics (-5.285625) is greater than the 5%
critical value (-1.952910) in absolute terms. This implies that the residuals are
stationary (i.e. the variables are co-integrated or that the linear influence of the
independent variables cancels out).
4.1.3 Error Correction Mechanism Result

38
Table 4.3: ECM Test Result
Dependent Variable: D(RGDP)

Date: 08/018/18 Time: 00:03
C 100711.5 228196.0 0.441338 0.6633

D(OPN) -58394.60 12109.00 -2.193311 0.0001
IMP -0.008083 0.019171 -1.261230 0.6774
D(EXP01) 0.267424 0.164468 5.546243 0.1182
D(D(EXR)) 3.096757 55.67152 2.434510 0.9561
D(FDI) -0.005864 0.462890 -0.177320 0.9900
ECT(-1) 0.270540 0.149135 0.472991 0.6409

S.E. of regression 987045.1 Akaike info criterion 30.64932
F-statistic 4.024602 Durbin-Watson stat 1.473927
Prob(F-statistic) 0.007177
From table 4.3 above, the magnitude of the short run disparity is 27.0540, that is to
say the degree of the short run dynamics is 27.0540. This shows a low speed of
adjustment to equilibrium after a shock.
In the regression result based on the ECM test result, the variables under
consideration are real gross domestic product (dependent variable), Trade openness
(OPN), Import (IMP), Export (EXP), Exchange rate (EXR), and Foreign direct
investment (FDI). From the result the estimated coefficient value of β0, β1, β2, β3, β4, and
β5 are 100711.5, -58394.60, -0.008083, 0.267424, -0.3096757 and 0.005864
respectively.
The regression results are presented as follows:

39
RGDP = 100711.5 – 58394.6OPN – 0.008083IMP + 0.267424EXP + 3.096757EXR –
0.005864FDI
S.E = (228196.0) (12109.00) (0.019171) (0.164468) (55.67152)
(0.462890)
T* = 0.441338 -4.822412 0.421633 1.625998 -0.055626
-0.012669
R2 = 0.523269
Adjusted R2 = 0.393251
F* = 4.024602
Durbin-Watson statistics = 1.473927
TABLE 4.4: Result of A prior Test:
VARIABLES EXPECTED OBSERVED SIGNS RESULTS

SIGNS
OPN +VE -VE DCWES
IMP -VE -VE CWES
EXP +VE +VE CWES
EXR +VE +VE CWES
FDI +VE -VE DCWES
CWES – conform with expected sign
DCWES- does not conform with expected sign
4.1 Evaluation of Regression Results
4.1.1 Evaluation Based on Economic Criterion

40
This subsection is concerned with evaluating the regression results based on a
priori expectations. The signs and magnitude of each variable coefficient is evaluated
against theoretical expectations.
The signs of the variables coefficient from the estimated model are not in line
with a priori expectations. Trade openness has a negative relationship with real
gross domestic product, Import has a negative relationship with real gross domestic
product, Export has a positive relationship with real gross domestic product,
Exchange rate has a positive relationship with real gross domestic product, Foreign
direct investment has a negative relationship with real gross domestic product). The
constant term is estimated at 100711.5 which means that the model passes through
the point 100711.5 mechanically, if the independent variables are zero, Real Gross
Domestic Product would be 100711.5 (Gujarati and Sangeetha, 2007).
The estimated coefficient for Trade openness (OPN) is -58394.6, this implies
that if we hold all other variables affecting Real Gross Domestic Product constant, a
unit change in trade openness (OPN) will lead to a -58394.6 decrease in Real Gross
Domestic Product on the average.
The estimated coefficient for Import (IMP) is -0.008083, this implies that if we
hold all other variables affecting Real Gross Domestic Product constant, a unit change
41
in Import (IMP) will lead to a 0.008083 decrease in Real Gross Domestic Product on
the average.
The estimated coefficient for Export (EXP) is 0.267424, this implies that if we
hold all other variables affecting Real Gross Domestic Product constant, a unit change
in Export will lead to a 0.267424 increase in Real Gross Domestic Product on the
average.
The estimated coefficient for Exchange rate (EXR) is 3.096757, this implies
that if we hold all other variables affecting Real Gross Domestic Product constant, a
unit change in Exchange rate (EXR) will lead to a 3.096757 increase in Real Gross
Domestic Product on the average.
The estimated coefficient for Foreign direct investment (FDI) is 0.005864, this
implies that if we hold all other variables affecting Real Gross Domestic Product
constant, a unit change in Foreign direct investment (FDI) will lead to a 0.005864
decrease in Real Gross Domestic Product on the average.
4.1.2 Evaluation Based On Statistical Criterion
4.1.2.1 R2 –Result and Interpretation

42
This subsection applies the R2, the t-test and the f-test to determine the
statistical reliability of the estimated parameters. These tests are performed as
follows;
The coefficient of determination R2 from the regression result, the R2 is given
as 0.523269 this implies that 52.3269% of the variation in Real Gross Domestic
Product is being explained by the variation in Openness, Import, Export, Exchange
rate, Foreign direct investment.
Table 4.5: Result of t-Test of Significance
VARIABLES t- t-tabulated Conclusion

computed (t*) (ta/2)
OPN -2.193311 -2.042 significant
IMP -1.261230 -2.042 Insignificant
EXP 5.546243 2.042 Significant
EXR 2.43451 2.042 Significant
FDI -0.17732 -2.042 Insignificant
Significant (Reject Ho; accept H1),
Insignificant (Accept Ho).
For OPN, t*<ta/2 therefore we reject null hypothesis. Hence trade openness is
statistically significant thus trade openness has significant impact on economic
growth.
For IMP, t*<ta/2 therefore we accept null hypothesis. Hence import is
statistically insignificant thus import has no significant impact on economic growth.

43
For EXP, t*>ta/2 therefore we reject null hypothesis and accept alternative
hypothesis. Hence export is statistically significant thus export has significant impact
on economic growth.
For EXR, t*>ta/2 therefore we reject null hypothesis and accept alternative
hypothesis. Hence exchange rate is statistically significant thus exchange rate has
significant impact on economic growth.
For FDI, t*<ta/2 therefore we accept null hypothesis. Hence foreign direct
investment is statistically insignificant thus foreign direct investment has no
significant impact on economic growth.
4.1.3 Evaluation Based on Econometric Criterion
In this subsection, the autocorrelation econometric test is used to evaluate the
result obtained from our model:
4.1.3.1 Result and Interpretation of Autocorrelation Test
Using the durbin-watson statistics, the region of no autocorrelation (positive
or negative) is given as follows
du< d*< (4-du)
du = 1.87
d*= 1.473927
(4-du) 4 – 1.87 = 2.13
By substitution, the region becomes:
1.87 >1.473927< 2.13

44
The result shows that there is the presence of autocorrelation problem in the
model as the computed durbin Watson statistics did not fall within the zero
autocorrelation regions.
4.1.3.2 Granger Causality Test Result and Interpretation
The results of the granger causality are summarized below.
Table 4.6: Result of Granger Causality Test
Pairwise Granger Causality Tests

Date: 01/04/11 Time: 00:07
Sample: 1986 2017
Lags: 2
Null Hypothesis: Obs F-Statistic Prob.
EXP01 does not Granger Cause RGDP 30 5.25411 0.0124

RGDP does not Granger Cause EXP01 5.21157 0.0128
EXR does not Granger Cause RGDP 30 1.14322 0.3349

RGDP does not Granger Cause EXR 13.1953 0.0001
FDI does not Granger Cause RGDP 30 1.01802 0.3758

RGDP does not Granger Cause FDI 0.28179 0.7568
IMP does not Granger Cause RGDP 30 0.27799 0.7596

RGDP does not Granger Cause IMP 0.47014 0.6303
OPN does not Granger Cause RGDP 30 68.6793 0.0011

RGDP does not Granger Cause OPN 0.07822 0.9250
From the table 4.3 above based on our decision rule, we conclude that Export (EXP)
has a bi-directional relationship with Real gross domestic product (GDP) in Nigeria,
Exchange rate (EXR) have a uni-directional relationship with real gross domestic
product (RGDP) flowing from RGDP to EXR, Trade openness (OPN) have a uni-
directional relationship with real gross domestic product (RGDP) flowing from OPN
to RGDP. While there is no direction of relationship between Import (IMP) and

45
Foreign Direct Investment (FDI) with Gross domestic product (GDP) in Nigeria as at
the period estimated.
4.2 Evaluation of Research Hypotheses
From the t-test result in table 4.5 above, and based on our decision rule, we
accept the null hypothesis (Ho) for trade openness.
Therefore, we conclude that Trade openness (OPN) has no significant impact
on the Nigeria Economic Growth.
We accept the null hypothesis (Ho) for Import (IMP) and conclude that import
(IMP) has no significant impact on the Nigeria Economic Growth.
For Export, we reject the null hypothesis (H o) and accept alternative
hypothesis (H1) and conclude that Export (EXP) has significant impact on the Nigeria
Economic Growth.
For Exchange rate (EXR), we reject the null hypothesis (Ho) and accept
alternative hypothesis (H1) and conclude that Exchange rate (EXR) has significant
impact on the Nigeria Economic Growth.
For Foreign direct investment (FDI), we accept the null hypothesis (H o) and
conclude that foreign direct investment (FDI) has no significant impact on the
Nigeria Economic Growth.
Further, from the f-test result above, the f cal> f0.05, we reject the null hypothesis
and accept the alternative hypothesis.

46
Therefore, we conclude that the trade liberalization variables (trade openness,
import, export exchange rate and foreign direct investment) are significant on the
entire regression plane.
Furthermore from the result in table 4.6, there exists a bi-directional causality
relationship between export and economic growth, this means that past values of
export can be used to estimate the future value of economic growth and as well past
values of economic growth can be used to estimate the future values of export. Also,
Exchange rate (EXR) have a uni-directional relationship with real gross domestic
product (RGDP) flowing from RGDP to EXR meaning that past values of RGDP can be
used estimate the future values of Exchange rate. Whereas, Trade openness (OPN)
also have a uni-directional relationship with real gross domestic product (RGDP)
flowing from OPN to RGDP meaning that past values of trade openness can be used
to estimate the future values of real gross domestic product.
4.3 Implication of the Results
The result of this study indicates that trade openness, import, and foreign
direct investment have negative relationship and insignificant impact on economic
growth in Nigeria, this that trade openness, import and foreign direct investment
have no potential to drive the economic growth in Nigeria and did not contribute
significantly to economic growth in Nigeria, this can be attributed to high rate of
trade openness which led to excessive importation of consumer goods at the

47
detriment of capital goods, this also encourage dumping of cheap and sub-standard
foreign goods which compete with local goods and that are close substitute.
Export and Exchange rate have a positive relationship and significant impact
on economic growth in Nigeria. This means that export and exchange rate have the
potentials to drive the economic growth in Nigeria . This result was much expected
because of the recent export promotion and agricultural policies put in place by the
Nigeria government to improve local productivity and benefit more from
international trade.
The results further indicates a bi-directional causality relationship between
export and economic growth, this means that past values of export can be used to
estimate the future value of economic growth and as well past values of economic
growth can be used to estimate the future values of export. Also, Exchange rate (EXR)
have a uni-directional relationship with real gross domestic product (RGDP) flowing
from RGDP to EXR meaning that past values of RGDP can be used estimate the future
values of Exchange rate. Whereas, Trade openness (OPN) also have a uni-directional
relationship with real gross domestic product (RGDP) flowing from OPN to RGDP
meaning that past values of trade openness can be used to estimate the future values
of real gross domestic product.

48
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings
The result indicated that trade openness, import and foreign direct investment
have a negative relationship and insignificant impact on economic growth of Nigeria
while export and exchange rate have a positive relationship and significant impact on
growth of Nigeria.
The results also shows that the entire trade liberalization variables (OPN, IMP,
EXP, EXR and FDI) has overall significant impact on economic growth.
Furthermore, the results shows that Export (EXP) have a bi-directional
relationship with Real gross domestic product (GDP) in Nigeria, Exchange rate (EXR)
have a uni-directional relationship with real gross domestic product (RGDP) flowing
from RGDP to EXR, Trade openness (OPN) have a uni-directional relationship with
real gross domestic product (RGDP) flowing from OPN to RGDP. While there is no
direction of relationship between Import (IMP) and Foreign Direct Investment (FDI)
with Gross domestic product (GDP) in Nigeria as at the period estimated.

49
5.2 Conclusion
In this study, we did empirical analysis on the impact of trade openness on
economic growth in Nigeria over the years (1986-2017). Based on the findings of this
research, we conclude that trade liberalization variables have overall significant
impact on Nigeria economic growth. Furthermore, there exist causality relationship
between trade liberalization variables and economic growth of Nigeria.
5.3 Recommendations
Based on the findings of the study so far, the following recommendations were
made.
1. The government should lower excise duties in order to encourage local
industries to export their manufactured goods to other counter, especially in Africa.
2. The Nigerian government should adopt anti-dumping and import restriction
policy that will help to curb the importation of obsolete or substandard goods and
also curb excessive importation of consumer goods and by so doing, will help in
more importation of capital goods that will drive economic growth and the
development of the infant industry and also encourage consumption of domestically
produced goods.
3. The Nigeria government should review export promotion strategy, import
substitution strategy and export diversification to help address the issue of
unfavourable balance of payment.

50
4. The Nigeria government through the help of the ministry of finance shoud
place a high import tariff on the importation of less essential goods such as
consumer’s goods and a low import tariff on the importation of very essential goods
such as capital goods.
5. The Nigeria government through the Central bank of Nigeria should maintain a
relatively stable exchange rate to encourage foreign direct investment.
6. The government should diversify the economy into production and
exportation of various ranges of goods, in order to achieve favourable balance of
trade.
7. The government should implement and maintain infant industries
protectionism. This will help eliminate the unfair competition faced by infant
industries, boost their capacity to produce and discourage importation.

51
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55
APPENDIX I
YEAR RGDP OPN IMP EXP EXR FDI
1986 205971.4 0.339324 5983.6 8920.6 1.75 9313.6
1987 204806.5 0.671747 17861.7 30360.6 4.02 9993.6
1988 236729.6 0.764526 21445.7 31192.8 4.54 11339.2
1989 263729.6 1.089841 30860.2 57971.2 7.36 10899.6
1990 267550 1.430415 45717.9 109886.1 8.04 10436.1
1991 265379.1 1.675537 89488.2 121535.4 9.91 12243.5
1992 271365.5 20.7122 143151.2 205611.7 17.3 20512.7
1993 274833.3 3.300112 165629.4 218770.1 22.07 66787
1994 275450.6 3.835155 162788.8 205611.7 22 70714.6
1995 281407.4 4.245089 755127.7 218770.1 21.9 119392
1996 293745.4 3.531274 562626.6 206059.2 21.88 122601
1997 302022.5 3.634441 845716.6 950661.4 21.89 128332
1998 310890.1 3.840094 837418.7 1309543 21.89 152411
1999 312183.5 10.80192 862515.7 1241663 92.34 154190
2000 329178.7 12.1382 985022.4 751856.7 101.7 157509
2001 356994.3 11.74603 1358180 1188970 111.23 157509
2002 433203.5 11.77019 1512695 1945723 120.58 161442
2003 477533 12.16253 2080235 1867954 129.22 1666321
2004 527576 11.86672 1987045 1744178 132.89 178479
2005 561931.4 7.511556 2800856 3087886 131.27 249221
2006 595821.6 5.332819 3108519 4602782 128.65 324657
2007 634251.1 7.18809 3911953 7246535 125.81 481239
2008 672202.6 4.185479 51898093 7324681 118.55 552499
2009 718977.3 5.297067 5102534 8309758 148.9 399842
2010 775525.7 6.758857 7614441 10161490 150.3 441271
2011 747251.5 5.292117 10237776 8356386 153.86 563524
2012 728489.3 5.950525 9766601 11532023 157.5 610576
2013 732187.5 61.77248 9439400 14231453 157.31 657629
2014 7572663 6.011536 10538801 15139300 158.55 704681
2015 7863525 13.39278 10285864 15262000 192.44 657629
2016 7718094 9.702158 12471438 12960501 175.5 602460
2017 7790810 11.54747 11378651 13173264 18397 584250
56
APPENDIX II
EXPORT STAIONARITY TEST RESULT
Null Hypothesis: D(EXP01) has a unit root
Exogenous: None
t-Statistic Prob.*

5% level -1.952473
10% level -1.610211

Dependent Variable: D(EXP01,2)
Date: 01/03/11 Time: 23:48
D(EXP01(-1)) -0.781587 0.181309 -4.310802 0.0002

57
APPENDIX III
EXCHANGE RATE STAIONARITY TEST RESULT
Null Hypothesis: D(EXR,2) has a unit root

Exogenous: None
t-Statistic Prob.*

5% level -1.952910
10% level -1.610011

Dependent Variable: D(EXR,3)
Date: 01/03/11 Time: 23:50
D(EXR(-1),2) -64.26451 25.72051 -2.498571 0.0186

Adjusted R-squared 0.153274 S.D. dependent var 3396.775
58
APPENDIX IV
FOREIGN DIRECT INVESTMENT STAIONARITY TEST RESULT
Null Hypothesis: D(FDI) has a unit root

Exogenous: None
t-Statistic Prob.*

5% level -1.952473
10% level -1.610211

Dependent Variable: D(FDI,2)
Date: 01/03/11 Time: 23:51
D(FDI(-1)) -1.504724 0.160315 -9.386051 0.0000
R-squared 0.752344 Mean dependent var -629.6667

59
APPENDIX V
IMPORT STAIONARITY TEST RESULT
Null Hypothesis: IMP has a unit root

Exogenous: None
t-Statistic Prob.*

5% level -1.952066
10% level -1.610400

Dependent Variable: D(IMP)
Date: 01/03/11 Time: 23:53
IMP(-1) -0.628670 0.173131 -3.631182 0.0010

Adjusted R-squared 0.304680 S.D. dependent var 12263050
S.E. of regression 10225651 Akaike info criterion 35.15042
60
APPENDIX VI
TRADE OPENNESS STAIONARITY TEST RESULT
Null Hypothesis: D(OPN) has a unit root

Exogenous: None
t-Statistic Prob.*

5% level -1.952473
10% level -1.610211

Dependent Variable: D(OPN,2)
Date: 01/03/11 Time: 23:54
D(OPN(-1)) -1.546007 0.155624 -9.934259 0.0000

Sum squared resid 4953.805 Schwarz criterion 8.057964
61
APPENDIX VII
RGDP STAIONARITY TEST RESULT
Null Hypothesis: D(RGDP) has a unit root

Exogenous: None
t-Statistic Prob.*

5% level -1.952473
10% level -1.610211

Dependent Variable: D(RGDP,2)
Date: 01/03/11 Time: 23:55
D(RGDP(-1)) -0.957795 0.185540 -5.162193 0.0000

62
APPENDIX VIII
COINTEGRATION TEST RESULT
Null Hypothesis: ECT has a unit root

Exogenous: None
t-Statistic Prob.*

5% level -1.952910
10% level -1.610011

Dependent Variable: D(ECT)
Date: 01/03/11 Time: 23:57
ECT(-1) -0.998944 0.188993 -5.285625 0.0000

63
APPENDIX IX
ECM TEST RESULT
Dependent Variable: D(RGDP)

Date: 08/018/18 Time: 00:03
C 100711.5 228196.0 0.441338 0.6633

D(OPN) -58394.60 12109.00 -2.193311 0.0001
IMP -0.008083 0.019171 -1.261230 0.6774
D(EXP01) 0.267424 0.164468 5.546243 0.1182
D(D(EXR)) 3.096757 55.67152 2.434510 0.9561
D(FDI) -0.005864 0.462890 -0.177320 0.9900
ECT(-1) 0.270540 0.149135 0.472991 0.6409

F-statistic 4.024602 Durbin-Watson stat 1.473927
Prob(F-statistic) 0.007177
64
APPENDIX X
GRANGER CAUSALITY TEST RESULT
Pairwise Granger Causality Tests

Date: 01/04/11 Time: 00:07
Sample: 1986 2017
Lags: 2
Null Hypothesis: Obs F-Statistic Prob.
EXP01 does not Granger Cause RGDP 30 5.25411 0.0124

RGDP does not Granger Cause EXP01 5.21157 0.0128
EXR does not Granger Cause RGDP 30 1.14322 0.3349

RGDP does not Granger Cause EXR 13.1953 0.0001
FDI does not Granger Cause RGDP 30 1.01802 0.3758

RGDP does not Granger Cause FDI 0.28179 0.7568
IMP does not Granger Cause RGDP 30 0.27799 0.7596

RGDP does not Granger Cause IMP 0.47014 0.6303
OPN does not Granger Cause RGDP 30 68.6793 7.E-11

RGDP does not Granger Cause OPN 0.07822 0.9250
EXR does not Granger Cause EXP01 30 2.84828 0.0768

EXP01 does not Granger Cause EXR 8.06616 0.0020
FDI does not Granger Cause EXP01 30 0.74649 0.4843

EXP01 does not Granger Cause FDI 3.42983 0.0483
IMP does not Granger Cause EXP01 30 1.58173 0.2255

EXP01 does not Granger Cause IMP 5.41429 0.0111
OPN does not Granger Cause EXP01 30 0.01482 0.9853

EXP01 does not Granger Cause OPN 3.41736 0.0488
FDI does not Granger Cause EXR 30 0.05736 0.9444

EXR does not Granger Cause FDI 9.15964 0.0010
IMP does not Granger Cause EXR 30 0.08663 0.9173

EXR does not Granger Cause IMP 3.02912 0.0664
OPN does not Granger Cause EXR 30 0.14843 0.8628

EXR does not Granger Cause OPN 1.76277 0.1922
IMP does not Granger Cause FDI 30 0.36054 0.7009

FDI does not Granger Cause IMP 1.21390 0.3140
OPN does not Granger Cause FDI 30 0.87615 0.4288

FDI does not Granger Cause OPN 1.20890 0.3154
OPN does not Granger Cause IMP 30 0.20396 0.8168

IMP does not Granger Cause OPN 0.24122 0.7875

The Impact of Trade Liberalization On Economic Growth in Nigeria.

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1

1.1 Background of the Study

international trade increased by 17times, while global income increased by 4, and

income per capita doubled.

As seen in many countries, the principal motive of governments especially in

this principled goal, countries have embarked themselves in popular economic

countries including Nigeria have decided to opt-for is trade liberalization of

economies (Herath, 2010).

Furthermore, countries with high trade performance have recorded higher

essential in promoting, improving and sustaining the growth and development of

globalization and trade iberalisation in the global economic system, Nigeria is a

as International Monetary Fund (IMF), World Trade Organization (WTO), World

Bank, Economic Community of West African States (ECOWAS), and others.

The overriding objective of this economic partnership on international trade

and embark on outward-oriented trade policies. Despite Nigeria’s great attempt to

relative to her trading partners in terms of country output growth.

aggregate of activities relating to trading between merchants across borders.

engendered from differentials among international economic environment of nations

1.2 Statement of Problem

Trade is often considered the engine of development strategies in any nation

disseminate knowledge. Trade liberalization is seen as the removal of obstacles of

free trade such as tariffs and quota.

Trade openness has a drawback to economic growth because some goods

1.3 Research Questions

associated with trade openness in Nigeria.

1. What is the impact of trade liberalization variables on the economic growth in

2. What is the causality relationship between trade liberalization variables and

Economic growth in Nigeria?

1.4 Objectives of the Study

on economic growth in Nigeria. Specifically, the study intends

1. To determine the impact of trade liberalization variables on the economic

2. To determine the direction of causality between trade liberalization variables

and the economic growth in Nigeria.

1.5 Hypotheses of the Study

1. Ho: Trade liberalization variables have no significant impact on economic

2. H0: Trade liberalization variables have no directional causality relationship with

the economic growth in Nigeria.

1.6 Significance of the Study

The role of international trade in the developmental journey of an economy

cannot be over emphasized, especially with the current trend of globalization.

1.7 Scope and Limitation of the Study

This research work of trade liberalization on Nigeria economic growth spread

computation and modeling. Nevertheless, the researchers have properly organized

making and implementation at least for the time being.

2.1 Conceptual Literature

2.1.1 Concept of Trade Liberalization

increasing integration of the World market (Fafowora, 2000). In the works of

Derossa, (2000), trade liberalization was referred to as the increasing international

forms: basic labour, skilled labour and other professional services.

in production and makes them gain efficiency in utilization of production resources

(Adenikinju and Chete, 2003). However, a more integrated World economies is

prone to some adverse consequences equally as it relates to financial management,

environmental degradation and pace of development. Also, trade liberalization opens

an economy to some financial crisis (UNEP, 2001).

Trade liberalization is the removal or reduction of restrictions or barriers on

restrictions is often referred to as promoting "free trade."

2.1.2 Concept of Import

An import of a good occurs when there is a change of ownership from a non-

repair). Also smuggled goods must be included in the import measurement.

Imports of services consist of all services rendered by non-residents to

residents. In national accounts any direct purchases by residents outside the

economic territory of a country are recorded as imports of services; therefore all

expenditure by tourists in the economic territory of another country are considered