Trade Openness Gross Domestic Product Nexus In Nigeria: An Application Of Autoregressive Distributed Lag (ARDL) Model Approach

Abstract

Trade openness is prevalent among governments as a panacea for growth. Conventional wisdom holds that openness drives economic growth. However, although various theoretical models predict that openness to international trade will promote economic growth, the empirical evidence is imprecise. This study, therefore, examined the relationship between trade openness and gross domestic product in Nigeria using the autoregressive distributed lag (ARDL) method. The study covers the period from 1990 to 2021. The study conducted an ADF unit root test, an Augmented Dickey-Fuller test for co-integration, and a long-run analysis. Econometric analysis shows that trade openness and exchange rates exert a positive influence on Nigeria's economic growth, while real interest rates and FDI had a negative impact on the growth of the Nigerian economy during the period under review. In the long run, a unit increase in TR and EXCH will lead to economic growth of 0.3 and 0.01 units, respectively. On the other hand, a unit increase in RIR leads to a decrease in growth of 0.05 units. Like wisely, FDI has a negative but imperceptible impact on economic growth. The short-run co-integration equation shows an adjustment speed of 77% between the dependent variable and the independent variables. The research results also show that in the short term, TR and EXCH positively impacted economic growth, while FDI and RIR maintained a negative relationship with economic growth. Therefore, we recommend that the government accelerate policy implementation in infrastructure development and promote stringent regulatory measures to help protect businesses operating in Nigeria.