Estimating Price and Income Elasticities of Trade in Services in Nigeria

Abstract

The study estimated the elasticity of trade in services to real exchange rates and income in Nigeria. Adopting the imperfect substitutes model, the empirical findings revealed an inelastic real exchange rate and income elasticities in export and import of services functions in the long and short run. However, the value of income elasticity significantly exceeds the value of real exchange rate elasticity. The results for the long and short run coefficient estimates are broadly consistent across alternative estimators with some exceptions. While the real exchange rate have a significant future impact on export of services, domestic income was found to be the major driver of future import of services in Nigeria. There is a need to formulate and implement government policies that can enhance the tradability of services in Nigeria and abroad.