TRADE OPENNESS AND OUTPUT GROWTH IN NIGERIA (1981-2013)
ABSTRACT
This study investigates the relationship between trade openness and output growth in Nigeria with a view to using complex econometric techniques to empirically evaluate the convergence of the interrelationships over the long run and correcting for the short run dynamics in their interactions. Employing the Vector Auto-regressive technique with annual time series data (1981-2013), the evaluation showed that there is significant and stable long run relationship between trade openness and output growth in Nigeria for the period under review. The Variance Decomposition and Impulse Response results to examine the variations in the interrelationships show that a large part of the variations were sourced from the innovations in “own shocks” in the endogenous variables (trade openness, import, foreign direct investment, oil price and real gross domestic product) utilized in the study. It follows that the substantial level of instability in trade openness has impeded the effectiveness of several policy scenarios to correct for the short run dynamics in major macroeconomic parameters to achieve stable and sustained economic growth and development in Nigeria. The study proceeds to recommend the implementation of effective policy frameworks that is projected towards stimulating macroeconomic stability, effective socio-economic linkages, and reduction in negative economic growth rate as well as diversification of the economy..
TABLE OF CONTENT
CHAPTER ONE: INTRODUCTION
1.1    background to the study    -    
1.2    Statement Of The Problem    -    -    
1.3    Objectives Of The Study    -    -    -    
1.5    Statement Of Research Hypotheses    -    -    -
1.6    Significance Of The Study    -    -    
1.7    Scope Of The Study    -    -    -
CHAPTER TWO: LITERATURE REVIEW
2.1 Conceptual Review    -    -    
2.1.1 Concept of Trade openness    -    -    -
2.1.2 Measures of Trade Openness    -    -    -
2.1.3    Debate on Trade Openness    -    -    -
2.2 Theoretical Literature    -    -    -    -
2.2.1 Theories of Trade    -    -    -    -
2.2.2 Other Trade Theories Include    -    -    -    -
2.3    Trade Openness Trend In Nigeria    -    -    -    
2.4    Trade Openness And Economic Growth    -    -
2.5    Empirical Literature    -    -    -    -    
2.6    Nigeria Trade Performance    -    -    
CHAPTER THREE: THEORETICAL FRAMEWORK, MODEL SPECIFICATION AND METHODOLOGY
3.0    Introduction -        -    -    -    -
3.2     Theoretical Framework    -    -    -
3.2.1     Neoclassical Approach    -    -
The Solow Swan (Early Neoclassical) Model    -
The Romer Model    -    -    -    -    
The Shumpeterian Growth Model    -    
Endogeneous Growth Approach    -    -    -    
Institutional Approach    -    -    -    -
3.3     Model Specification    -    -    -    -    -
3.3     Method Of Estimation    -    -    -    
3.4     Source Of Data    -    -    -    
CHAPTER FOUR: ANALYSIS AND INTERPRETATION OF RESULTS
4.1    Introduction -        -    -    
4.1    Augmented Dickey Fuller Unit Root Test    -    -
4.2    VAR Lag Order Selection Criteria    -    -
4.3     Test of Co-integration    -    -    -    
4.4 pairwise granger causality test result (with 2 lag selection
periods testing at 5% level)    -    -    -    -
4.5     Vector Autoregressive (Var) Estimate    -
4.6     Forecast Error Variance Decomposition Estimate    -
4.7     Impulse Response Function        -    
4.7     Policy Implication    -    -    -    -
CHAPTER FIVE: SUMMARY, POLICY RECOMMENDATION AND CONCLUSION
5.1    Summary    -    -    -    -    -
5.2    Recommendation    -    -    -    -    -
5.3    Conclusion    -    -    -    -    -    -
REFERENCES    -    -    -    -    
APPENDIX I    -    -    -    -    -    -    -    -    
LIST OF TABLES
Table 1(a): Augmented-Dickey Fuller (ADF) Test Results at Levels-    
Table 1(b): Augmented-Dickey Fuller (ADF) Test Results at first difference
Table 3: Johansen Co-integration Test    -    -    -    
CHAPTER ONE
INTRODUCTION
1.1    BACKGROUND TO THE STUDY
In our economy today, we are privileged to make use of the advanced world countries’ products having risen from improved technologies of the world. We even eat their type of food, wear their type of clothes, and drive in their type of cars and so on without having to produce these product locally in the country. This is possible through international trade occasioned by globalisation and trade liberalisation. With globalization, two major trend are noticed; first is the emergence of multinational firms with strong presence in different, strategically located market and the second is the emergence of consumer taste for the most demanded products, not minding from which country they are produced (Ehinomen and Da’ Silva, 2014).
The issue on whether the extent to which a country opens up its border for trade to promote economic growth have been of great importance to international and development economists. The prominent message from the intensive research  is that countries encouraging freer trade enjoy more rapid rate of growth in per capita income than otherwise similar countries which are inward oriented.
The world economy has experienced a massive liberation to trade since the 1950s initially under The General Agreement on Trade and Tariff (GATT) which was later replaced by the World Trade Organization (WTO) in 1995. This has led to the reduction in the tariff level in both the developed and developing countries to about 4% and 20% respectively thereby encouraging international trade based on the openness to trade. According to Dollar (1992), he defined openness as the combination of two dimensions; first, is a lower level of protection, and of trade distortion and second is a stable exchange rate so that incentive remains constant over time. In theory, the openness of an economy is the degree to which national and foreigners can transact without artificial (that is, governmentally imposed) costs (including delays and uncertainty) that can impose on transactions among domestic citizens. The term has been used extensively in the economic growth literature as a major determinant of economic performance.
The Nigerian economy has been considered as an open economy with international transaction contributing significantly to her aggregate output. Research has shown that to a large extent, Nigeria’s economic development depends greatly on the prospect of the export trade with other countries. According to Afala and Ohichukwu (2012), trade provides both foreign exchange earnings and market stimulus to accelerated economic growth but openness to trade may generate significant gain that enhances economic transformation. It translates to the fact that knowledge and innovation are shared amongst other open economies of the world. The identification of deeper trade integration and trade policies by Nigeria has helped to foster economic growth and alleviate poverty.
From the foregoing, it is clear that trade is very essential in promoting and ensuring the growth and development of any economy of the world and Nigeria is no exemption, hence, it is important to examine the relationship between trade openness and growth in Nigeria.
1.2    STATEMENT OF THE PROBLEM
It has been stated theoretically and proven empirically that the openness to trade contributes significantly to the level of growth of any economy (Ersoy and Deniz (2011), Sakyi (2011); Chaudlery (2010). Over the years, the volumes of trade between nations of the world have increased considerably. Nigeria in particular has witness a large volume of trade with other nations. Foreign trade statistics according to EIU Country Report of 2009 reveals that in 2007, total export in Nigeria was valued at $61.8 billion (free on board) while import was valued at $38.7 billion (free on board). Further breakdown of the composition of import and export shows that fuel and mining products, agricultural products and manufactured accounts for 97%, 2.2% and 0.8% of total export respectively while machinery, agricultural products and fuel and mining products accounts for 72.3%, 23.7% and 4% of total import respectively.
    According to the statistics revealed by the National Bureau of Statistics, Nigeria’s total trade figure for the second quarter of 2009 was N2, 210.3 trillion. Though, this figure reflects a decline of 37.9% when compared with the corresponding period in 2008. It indicates an increase of 11.9% over that of the first quarter of 2009.
    According to the Central Bank of Nigeria Statistical Bulletin, 2013, export was valued at N14, 840.7 billion while import was valued at N8, 808.1 billion. There has been an increasing interest in the study of the degree of openness to trade and its benefits particularly to developing countries. It has been shown that every country benefits from trade. However, empirical investigation shows that less developed countries has not benefited from trade compared to their developed counterpart. This is obviously due to the poor state of economies in terms of gross domestic product, per capita income, unemployment, low capacity utilization and poverty level despite several decades of participation in traded. In Nigeria, the volume of trade has increased tremendously over the years without a corresponding increase in growth and development. According to Appleyardetal (2006), there is a common misconception that china’s economic growth in increasing at the expense of its trading partners with Nigeria being her largest trading partner in Africa. However, an opposite view to this shows that a critical view of the Chinese investment and her trade in economic growth of Nigeria as observed by Nabine (2009) shows that in the short-term, the bilateral trade doesn’t contribute to Nigeria’s economic growth but the long-term relationship can enhance economic growth.
    The different view andopinion based on empirical findings on the impact of trade openness on economic growth is of serious concern especially in less developed countries and this has necessitated researches hence this research work attempt to fill the gap. The paper investigates the relationship between trade openness and growth in Nigeria.
From the statement of the problem above, the study seek to answer the following research questions:
Does trade openness impact economic growth in Nigeria?
Is there are long run relationship between trade openness and the growth of the Nigerian economy?
Is there a causal relationship between trade openness and the growth of the Nigerian economy?
Does foreign direct investment affect the growth of the Nigerian economy?
1.3    OBJECTIVES OF THE STUDY
The principal aim of this study is to empirically show or evaluate the relationship between trade openness and growth in Nigeria.
The specific objectives of the study include
1.    To examine how trade openness impact on economic growth in Nigeria.
2.    To investigate the extent in which a long run relationship between trade openness and the growth of the Nigerian economy.
3.     To evaluate the causal relationship between trade openness and the growth of the Nigerian economy.
4.    To determine if foreign direct investment affect the growth of the Nigerian economy.
1.5    STATEMENT OF RESEARCH HYPOTHESES
The research hypotheses to be tested in the course are stated in their null form below;
H01:    Trade openness does not impact on the growth of the Nigeria economy.
H02:    There is no long run relationship between trade openness and the growth of the Nigerian economy.
H03:    There is no causal relationship between trade openness and the growth of the Nigeria economy.
H04:    Foreign direct investment significantly does not affect the growth of the Nigeria economy.
1.6    SIGNIFICANCE OF THE STUDY
This study is significant because the extent to which openness to trade is important in any economy as it is seen as one of the engine of economic growth and hence, it is important for us to view the ways on how we can maximize the benefits and minimize the losses from trade openness. The role of international trade in the development effort of any economy cannot be over-emphasised especially with the current trend of globalisation in the world today.
The findings of this research work transcend beyond more academic paradigm, but it will be of immense benefit to federal agencies, policy makers, intellectual researchers, and international trade thinkers who occasionally prescribe and suggest policy options to the government on trade related issues.
The study will be of immense benefit to policy makers as it gives them an insight of the volume of trade in terms of export and import, thus assisting them in formulating policies which will exerts positive influence on the trade performance of the country.
Also, the study will important to manufacturers, exporters and importers as it helps them to be aware of government policies on international trade and the degree of openness of the economy. The study is useful to foreign partners as it provides information on the resources available in the country, hence will help to increase foreign investment which aid economic growth. The study is useful to researchers as it provides an econometric evidence on the relationship between trade openness on the growth of the Nigeria economy.
Finally, the study will also statistically enrich and add to the existing body of knowledge in the area of trade openness and its contribution to economic growth in Nigeria.
1.7    SCOPE OF THE STUDY
The scope of this study is limited to trade openness and growth in Nigeria. The study employs time series data based on stated variables covering the period 1981 to 2014. The data set used in the study is sourced from the Revised Statistical Bulletin (various issues) of the Central Bank of Nigeria 2014.