Do International Trade Dynamics Matter for Nigeria's Economic Growth? Evidence from Exports, Imports, Exchange Rate and Foreign Direct Investment

Abstract

This study examined the impact of international trade on the Nigerian economy over the period 1985–2024. The study was motivated by the inconclusive empirical evidence and conflicting findings regarding the effects of international trade on Nigeria's economic performance. Real Gross Domestic Product (RGDP) was employed as a proxy for economic growth, while Total Export Value (TEXV), Total Import Value (TIMV), Exchange Rate (EXCR), and Foreign Direct Investment (FDI) were used as explanatory variables. The Augmented Dickey-Fuller (ADF) unit root test revealed that the variables were integrated at mixed orders, I(0) and I(1), justifying the application of the Autoregressive Distributed Lag (ARDL) modelling approach. The ARDL long-run estimates showed that Total Export Value had a positive and highly significant effect on RGDP, lending support to the export-led growth hypothesis. Similarly, Foreign Direct Investment exerted a positive and statistically significant influence on economic growth, highlighting its role in enhancing capital accumulation and productivity. In contrast, Total Import Value and Exchange Rate exhibited statistically insignificant effects on RGDP. The study concludes that international trade contributes significantly to Nigeria's long-term economic growth, primarily through export expansion and increased foreign direct investment. It recommends that the government promote export diversification by supporting domestic industries through targeted fiscal incentives, improved infrastructure, reliable electricity supply, and a conducive business environment to enhance international competitiveness. Furthermore, policies should encourage the consumption of locally produced goods, rationalize imports of non-essential commodities, strengthen institutional quality through improved contract enforcement and reduced bureaucratic bottlenecks, and maintain a stable and predictable exchange rate regime. These measures will enhance productive capacity, attract long-term foreign investment, and foster sustainable economic growth in Nigeria