Does Trade Openness Make Sense? Investigation of Nigeria Trade Policy

Abstract

The empirically examined whether trade openness makes sense, using Nigeria trade policy as yardstick. Considering the framework of the traditional trade theories which postulate that trade has positive impact on economic growth, the study employed Autoregressive Conditional Heteroscedasticity (ARCH), Generalized Autoregressive Conditional Heteroscedasticity (GARCH) and Pairwise-Granger causality methodology using secondary data from 1984 to 2013. Results show that trade openness has a significant impact on economic growth. This implies that trade openness make sense in Nigeria given that most of the period under investigation ranged from when Nigeria adopted unrestricted trade policies. The control variables (interest rate and exchange rate) have significant positive effect on economic growth in Nigeria. The pairwise Granger causality test shows that there is a unidirectional causality between economic growth and trade openness at lag one only.