Economic growth, financial development and trade openness in Nigeria: An application of the ARDL bound testing approach

Abstract

For over a decade now, various efforts have been put in place by various governments of the developing economies to promote economic growth, financial development and expand trade with mixed results. The ability of financial development and/or trade openness to influence economic growth in the developing economies has been a subject of hot debate and remains inconclusive. While a number of scholars are of the view that compelling cointegration exists among each of these constructs, another set of substantial authors have documented that economic growth, trade openness and financial development do evolve independent of each other. Drawing from four financial developments-growth nexus theories, this study used the ARDL bound estimation techniques to examine the existence of cointegration among economic growth, financial development and trade openness in Nigeria. We intend to know what policy instruments need to be manipulated so as to achieve economic growth and financial stability. Our results show that a two-way cointegration exists between economic growth and financial development, on the one hand, as well as between economic growth and trade openness, on the other hand. We therefore recommend that in order to achieve economic growth, policymakers should pursue strong financial development and increase trade openness.

The impact of trade openness on economic growth: The case of Cote d’Ivoire

“…The results of this study show that international trade plays a significant role in the economic growth of Cote d'Ivoire, validating the trade-led growth hypothesis both in the short and long run. This finding accords with Asfaw (2014), Zarra-Nezhad et al (2014), and Brueckner and Lederman (2015), but contradicts with Vlastou (2010), Polat et al (2015), Ulaşan (2015), Were (2015) and Lawal et al (2016) who reported a negative or insignificant impact of trade openness on economic growth. Some of these studies do not include into the analysis capital or labor as additional explanatory variables.…”

“…Polat et al (2015) find that trade openness impedes economic growth in South Africa. Finally, Lawal, Nwanji, Asaleye, and Ahmed (2016) apply the ARDL methodology to Nigeria and find a negative long-run impact of trade openness on economic growth but a positive growth effect in the short run. Further, a two-way causality was found between the two variables.…”

Trade in Services-Economic Growth Nexus: An Analysis of the Growth Impact of Trade in Services in SADC Countries

“…Sakyi, Commodore, and Opoku (2015) investigated the long-run impact of FDI and trade openness on economic growth in Ghana and found that the interaction of FDI and exports has been crucial in fostering growth. A study by Lawal et al (2016) found a two-way causality between trade openness and growth as well as a negative and positive effect in the long and short run respectively. The study applied the ARDL methodology in Nigeria.…”

The Effects of Environmental Quality, Trade Openness, and Economic Growth on Financial Development in Algeria: A Diks and Panchenko Approach.

“…where m → ∞, ℎ + → + and ℎ − → + are the dynamic adjustment patterns. However, a rise in openness to trade improves the development of the financial sector at a 5% level of significance, just as documented in the study of Lawal et al (2016b). Meanwhile, C02 emission has a positive relationship with financial development, which means that; as the financial development of Algeria improves, the quality of the environment as well gets more deteriorated.…”