The Role of Sectoral Trade Imbalances in Financial Sector Strain of a Developing Economy: Evidence from Nigeria’s Textile Industry Decline

This research examines the intricate relationship between sectoral trade imbalances and financial sector strain in developing economies, with a focus on the decline of Nigeria’s textile industry. Utilizing a mixed-methods approach, the study integrates quantitative regression and correlation analyses with qualitative thematic insights derived from industry interviews. Quantitative findings reveal a significant inverse relationship between textile imports and Nigeria’s foreign exchange reserves, evidenced by a correlation coefficient of -0.775 and a coefficient of determination (R²) of 0.6006. These results highlight that approximately 60% of the variation in foreign exchange reserves is attributable to changes in textile GDP, underscoring the detrimental effects of import dependency on economic stability. Additionally, a moderate positive correlation (r = 0.3971) between textile imports and inflation rates demonstrates the inflationary pressures tied to rising imports, further straining the domestic economy. Thematic analyses identify critical drivers of this decline, including the adverse effects of international, infrastructural inadequacies, limited access to affordable credit, and policy inconsistencies. These structural challenges have contributed to the erosion of Nigeria’s competitiveness, exacerbated by the influx of subsidized foreign textiles and inadequate industrial protections. This study underscores the urgent need for targeted policy interventions to revitalize Nigeria’s textile industry and alleviate financial strain. Recommendations include introducing protective tariffs, modernizing industrial infrastructure, enhancing access to credit, and promoting local production through strategic trade reforms. The findings provide actionable insights for policymakers, trade negotiators, and economic planners, contributing to the academic discourse on trade imbalances and financial resilience in developing economies.