Trade Liberalization and Economic Growth: A Time Series Approach for Nigeria

ABSTRACT: The relationship between trade liberalization and economic growth of developing countries has constituted a substantial debate for decades. Findings from some researchers opine a negative effect of trade liberalization policy on the LDCs. Hence, this research work focused on a country case study for Nigeria in investigating whether trade liberalization lead to long run economic growth over a period of 50 years. Using annual data for the period of 1960-2010, a vector error correction model (VECM) is estimated in analyzing the dynamic behavior of economic variables capturing both the short and long-run relationship among them, namely, the Gross Domestic Product (GDP), fiscal and monetary policy variables (G) and (M1), and the openness measure for trade liberalization. The findings reveal that trade openness is highly significant in determining economic growth in the long-run while its impact is negligibly small for the time period of the study. On the other hand, the main determinant of long term economic growth is evidenced to be the monetary policy variable and that the largest response comes from the fiscal policy in correcting for any previous deviation from the long-run equilibrium path of the economy. This may suggest that both monetary and fiscal policies may play a greater role in the long-run economic growth of Nigeria rather than trade openness. Keywords: Trade Liberalization, economic growth, Vector Error Correction Model(VECM). …………………………………………………………………………………………………………………………