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Symmetric or asymmetric: how is Nigeria's bilateral trade balance responding to oil price and exchange rate changes?

Author

Listed:
  • Oliver E. Ogbonna
  • Hyacinth E. Ichoku

Abstract

Purpose - The experience of rising trade imbalance between Nigeria and its key trading partners in recent years motivated this study. Previous studies on this issue either ignored bilateral level or assumed that the effect of crude oil price and/or exchange rate changes on trade balance is symmetric. Consequently, this study investigates whether Nigeria's bilateral trade balance with Belgium, China, United Kingdom (UK) and USA is responding symmetrically or asymmetrically to changes in oil price and exchange rate. Design/methodology/approach - The authors used nonlinear autoregressive-distributed lag (NARDL) model that decomposed oil price and exchange rate into partial sum processes of positive and negative changes over the period 1999Q1–2019Q4. Findings - The study finds that the effects of oil price hike and plunge asymmetrically influence Nigeria's trade balance with the UK and USA. Further evidence indicated that oil price plunge exerts greater influence than price hike in all the cases, except the UK in the long run. Furthermore, Nigeria's trade balance responds asymmetrically and significantly to changes in exchange rate with China in the long run and with China and the UK in the short run. Specifically, the depreciation effect is more prominent than appreciation. Originality/value - Significant contributions to the existing literature in Nigeria include the recognition that the effects of oil price and exchange rate changes on trade are asymmetric and the disaggregation of trade into bilateral level to identify country-specific effect.

Suggested Citation

  • Oliver E. Ogbonna & Hyacinth E. Ichoku, 2022. "Symmetric or asymmetric: how is Nigeria's bilateral trade balance responding to oil price and exchange rate changes?," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 50(3), pages 464-479, March.
    • Handle: RePEc:eme:jespps:jes-10-2021-0537
    DOI: 10.1108/JES-10-2021-0537
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    More about this item

    Keywords

    Trade balance; Oil price; Exchange rate; Asymmetry; Nonlinear ARDL; C22; F14; F31; F41; Q43;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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