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Is “Trade” Openness Valid for Nigeria’s Long-Run Growth: A Cointegration Approach?

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Author Info

  • Ogujiuba Kanayo

    (African Institute for Applied Economics)

  • Oji Okechukwu

    (African Institute for Applied Economics)

  • Adeniyi Adenuga

    (Central Bank of Nigeria)

Abstract

As a prelude to tariff reduction, the government is currently assessing the implications of significantly reducing tariffs due, in part, to its 2001 agreement with Ghana to quickly implement the ECOWAS Trade Liberalization Scheme. The obvious questions are: Should Nigeria liberalize to all countries on all products or opt for a discriminatory approach through unilateral trade agreements? Where do we think Nigeria should be open, and on what issues should they be closed? What should Nigeria’s trade policy be in the face of globalization’s negative effects and increasing protectionism of developed countries? The paper reviews key issues regarding an appropriate design of trade policy reforms in Nigeria and its validity for Nigeria’s long-run growth using the cointegration approach. The VAR approach was preferred because it overcomes the limitation and ambiguity associated with the regression results (Enders, 1995). Moreover, recent Monte Carlo evidence strongly favors the Johansen Maximum Likelihood method (JML) approach over the Engle-Granger’s (Dejong, 1992) in this regard. Econometric results show that there is no significant relationship between openness and economic growth, and that unbridled openness could have deleterious implications for growth of local industries, the real sector and government revenue.

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Bibliographic Info

Paper provided by EconWPA in its series International Trade with number 0412009.

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Length: 21 pages
Date of creation: 10 Dec 2004
Date of revision:
Handle: RePEc:wpa:wuwpit:0412009

Note: Type of Document - doc; pages: 21. Comments are welcome
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Related research

Keywords: Trade Liberalization; Trade openness; Tariff reforms and Economic growth.;

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References

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  1. Paul M. Romer, 1994. "The Origins of Endogenous Growth," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 3-22, Winter.
  2. Angus Deaton, 1999. "Commodity Prices and Growth in Africa," Journal of Economic Perspectives, American Economic Association, vol. 13(3), pages 23-40, Summer.
  3. Sachs, Jeffrey D & Warner, Andrew M, 1997. "Sources of Slow Growth in African Economies," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 6(3), pages 335-76, October.
  4. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  5. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  6. Francisco Rodriguez & Dani Rodrik, 2001. "Trade Policy and Economic Growth: A Skeptic's Guide to the Cross-National Evidence," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 261-338 National Bureau of Economic Research, Inc.
  7. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  8. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
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Citations

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Cited by:
  1. Mete FERIDUN & Janet O. OLUSI & Benjamin Ayodele FOLORUNSO, 2006. "Analyzing The Impact Of Globalization On Economic Development In Developing Economies: An Application Of Error Correction Modelling (Ecm)To Nigeria," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(3).
  2. Walkenhorst, Peter & Cattaneo, Olivier, 2006. "Trade, Diversification and Growth in Nigeria," MPRA Paper 23735, University Library of Munich, Germany.

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