IMPACT OF TRADE OPENNESS AND EXCHANGE RATE VOLATILITY ON ECONOMIC GROWTH IN NIGERIA

Abstract

This paper investigated the impact of trade openness and exchange rate volatility on economic growth in Nigeria for the period 1986-2019. The main objective of the study was to investigate the effect of trade openness and exchange rate volatility on economic growth in Nigeria. To achieve the objective, the generalized autoregressive conditional heteroskedasticity (GARCH) and autoregressive distributed lag (ARDL) model were employed for the analysis. The study used annual time series data sourced from CBN Statistical Bulletin and National Bureau of Statistics for the period under investigation. The variables employed for the study include GDP growth rate used as proxy for economic growth which served as the dependent variable while trade openness, real exchange rate, foreign direct investment and inflation rate were used as the independent variables. Results from ARDL model showed that trade openness had negative and significant relationship with Nigeria’s economic growth both in the short-run and long-run. The results from the GARCH model indicated the presence of volatility in the real exchange rate of naira with its attendant implications on the Nigerian economy. Based on the findings, the study recommended that the Central Bank of Nigeria should stabilize the exchange rate of naira by controlling the high demand for foreign currency.