Open Economy and Poverty Reduction in Nigeria

This paper investigated how an open economy impacted poverty reduction in Nigeria during the period between 1985 and 2022. To analyze the effect of open economy through trade openness, export, import, foreign direct investment (FDI), and external borrowings on poverty level in Nigeria, this work used the Autoregressive Distributed Lag (ARDL) model, and data were sourced from the CBN Statistical Bulletin, the World Bank’s PovcalNet database, and World Development Indicators. The analysis indicated a long-run cointegration relationship in the model. Empirical results showed that trade openness, FDI, and imports positively affected poverty levels in Nigeria. Contrary to this, the effect of export had a negative relationship but statistically significantly impacted the poverty level in the long-run period. However, external borrowing had a negative relationship with poverty level, as increasing external borrowing was associated with decreased poverty and was statistically significant in the short-term period. The study concluded that export growth and external borrowing helped reduce poverty in Nigeria. Based on the findings and conclusion, the study recommended, among others, that Nigerian policymakers should encourage and subsidize export industries to produce their long-term effect in reducing poverty and transparently direct external borrowings to productive investments, especially in infrastructure, human capital development (education and health), and real sectors (agriculture and manufacturing), in order to maximize short-term effects of poverty reduction.