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Trade, Finance and Economic Growth in Nigeria

Jul 2026 · International Journal of Economics and Financial Management · 0 citations

Abstract

This study examines the impact of trade and financial indicators on economic growth in Nigeria from 1986 to 2023, a period marked by major trade liberalization efforts, financial sector reforms, and repeated macroeconomic shocks. Against the backdrop of Nigeria’s persistent struggle to convert openness and financial deepening into sustained economic progress, the research investigates the distinct effects of key macroeconomic variables—trade openness, trade balance, exchange rate, and inflation rate—on GDP growth. Employing an ex-post facto research design and utilizing secondary time-series data, the study applied the Autoregressive Distributed Lag (ARDL) bounds testing approach to cointegration and error correction modeling. The empirical findings reveal a structurally imbalanced trade–finance–growth relationship: trade openness exhibits a positive but statistically insignificant long-run effect on economic growth, highlighting the weakness of Nigeria’s export base and the limited productivity gains from openness. Similarly, trade balance demonstrates a positive yet insignificant long-run influence, reflecting a persistent disconnect between external sector performance and real-sector expansion. In contrast, the exchange rate shows a positive and statistically significant long-run impact, underscoring the critical role of exchange-rate stability in shaping economic outcomes. Inflation rate, however, exerts a negative and significant long run effect, confirming its destabilizing influence on investment, purchasing power, and output performance. The study concludes that Nigeria’s growth trajectory is constrained by a dual structural imbalance where trade variables fail to transmit their expected benefits, while financial conditions—especially inflation and exchange-rate dynamics—drive macroeconomic performance. It therefore recommends policy actions focused on strengthening export competitiveness, improving the trade environment, stabilizing the exchange rate, and implementing coordinated inflation-management strategies to align trade and financial policies with sustainable economic growth objectives.

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