Trade balance, exchange rate movements and economic growth in Nigeria: a disaggregated approach

Changes in exchange rate is noted to wield a negative and significant effect on RGDP at the 1% level of significance. It follows that a unit percent increase in exchange rate reduced RGDP by 0.0758% on the average. Also, oil trade balance exerts a negative and significant effect on RGDP at the 1% level of significance. Thus, a unit percent increase in OTBL leads to a 0.0113% decrease in RGDP on the average. This result does not go in accordance with the fact that trade promotes growth. This could be linked to the vagaries inherent in the international oil market and the current Covid-19 pandemic that has undermined the potency of oil trade in fostering productivity in an economy.

Table 7

Model III: Influence of exchange rate with non-oil trade balance economic growth

For Model III where the result is reflected in Table 8, changes in GFCF exerts a positive though an insignificant effect on RGDP. Its one-period lag exerts a negative but insignificant effect. However, its two-period lags and three-period lags wielded a negative and significant effect on RGDP at the confidence level of 5%. Thus, the two-period lags of GFCF decreased RGDP by 0.3515% while its three-period lags decreased RGDP by 0.4940% on the average.

Changes in labour force exerted a negative but insignificant effect on RGDP. Such negative effect could be linked to high rate of unemployment and underemployment of labour within the Nigerian economy. Also, its one-period lag to three-period lags wielded a negative but insignificant effect on RGDP. Changes in interest rate along with its lags exerted positive and significant effect on RGDP. A unit percent increase in INT increases RGDP by 0.5465% on the average. Its one-period lag increased RGDP by 1.2525% while its three-period lags increased growth by 0.9568% on the average.

Changes in GOVT is also noted to exhibit a negative and significant effect on RGDP while its lag values wielded a positive and significant effect. A unit percent increase in GOVT reduced RGDP by 2.9127% on the average. Its one-period lag and three-period lags increased RGDP by 0.4854% and 1.3391% on the average respectively.

Changes in ECHR and its two-period lags is observed to wield a positive but insignificant effect when the non-oil trade balance is inserted into the model. Meanwhile, the one-period lag and three-period lags of exchange rate yielded a negative and significant effect on RGDP. In that regards, the one-period lag and three-period lags of ECHR reduced RGDP by 0.1630% and 0.2132% respectively. It is also observed that changes in non-oil trade balance and its one-period to three period lags exerted a negative and significant short-run effect on RGDP at the 5% level of significance. A unit percent increase in NTBL wields a 0.0239% decrease in RGDP. Also, the one period lag, two-period lags, and three-period lags of NTBL reduces RGDP by 0.0754%, 0.0433% and 0.0350% respectively. This negative and significant effect is not surprising coupled with the fact that the non-oil trade balance has remained on the negative throughout the study period, implying an unfavorable balance of trade.

Table 8

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