Trade Openness and Macroeconomic Dynamics in Nigeria (2000–2023): Evidence from Autoregressive Distributed Lag (ARDL) Analysis

Abstract

Persistent macro‑volatility has cast doubt on whether two decades of liberalization have actually strengthened Nigeria’s economy. Trade‑to‑GDP fell from 41 percent in 2019 to 32 percent in 2021, GDP growth has swung from +6.3 percent (2014) to ‑1.9 percent (2020) and the naira has depreciated from ₦306/US$ (2019) to > ₦1,600/US$ (mid‑2024). Against this backdrop the study asks: (i) how has trade openness evolved between 2000‑2023; (ii) what is its effect on growth; and (iii) do inflation and exchange rate volatility condition that effect economic growth positively? Annual data on trade intensity, inflation, NGN/US$ rate and GDP‑growth were extracted from World Bank, IMF and CBN sources. After ensuring stationarity (ADF p < 0.01 for all series), a two‑stage strategy was adopted: an Ordinary Least Squares (OLS) model, testing the direct link (Model 1) and an Autoregressive Distributed Lag (ARDL)‑bounds framework testing individual and joint effects with mediators (Model 2). Diagnostics (VIF < 7; BG‑LM p = 0.37; BP‑Godfrey p = 0.82; CUSUM within 5% bands) confirmed model adequacy. Results show trade intensity exerts a large positive impact on GDP growth (β = 19.59; t = 7.77; p < 0.001; R² = 0.17), supporting Endogenous‑Growth predictions and leading to rejection of H₀₁. When inflation and the exchange rate are included, explanatory power rises (R² = 0.41; F = 7.40; p < 0.01). Exchange‑rate depreciation carries a small but significant negative effect (β = ‑0.016; p = 0.023), prompting rejection of H₀₃, whereas inflation is statistically inert (β = 0.14; p = 0.45), so H₀₂ is retained. The error‑correction term (‑0.93; p < 0.01) indicates a 93 percent annual convergence to long‑run equilibrium, confirming a stable cointegrating relationship and rejection of H₀₄. Trade openness is a robust growth driver, but naira volatility materially erodes these gains while moderate inflation appears growth‑neutral. the Federal Ministry of Industry, Trade and Investment—working with Nigerian Export Promotion Council (NEPC) should launch an export‑diversification programme (tax incentives, credit lines and African Continental Free Trade Area (AfCFTA) value‑chain facilitation for agro‑processing, light manufacturing and information and communication technology (ICT) product) so that the documented benefits of openness translate into broad‑based, shock‑resilient growth.