Importance of Trade Liberalization in Economic Growth Accounting: Evidence from Nigeria

How trade liberalization influences economic growth is a subject of interest that has attracted a large number of researchers. This thesis investigates the importance of trade openness in accounting for the dynamics of per capita real income in Nigeria, during the period 1981-2015. This study makes use of the vector error correction model (VECM) as the method of estimation. The VECM is used in analyzing the short-run and long-run dynamics of economic variables, namely, gross domestic product per capita, oil rent, value added of agriculture, human capital, gross capital formation and trade openness used as a proxy for trade liberalization. The estimation results of the thesis suggest that the speed of adjustment of disequilibrium among the variables of interest is around 25%. That is to say, it takes the variables 4 years to get back to their long-run equilibrium. The results also highlight the higher importance of the agricultural sector relative to the oil industry over the long-run. Our empirical analyses point out that trade openness does not have a significant impact on long-run adjustment among the real per capita income, human capital, agricultural value added and oil rent in Nigeria. Keywords: Trade liberalization, Economic growth, Agricultural value added, Oil sector, Vector error correction model, Nigeria.