The Role of Trade in the Transmission of U.S. Recessions into Africa: Evidence from Nigeria

Abstract

This paper examines the role of trade as a transmission channel of U.S. recessions into Africa, using Nigeria as a case study and time series data spanning 1981 to 2019. This involves examining how the impacts of U.S. recessions on Nigeria’s growth spread across time, based on an autoregressive distributed lag (ARDL) cointegration model. The main findings are: (i) When the trade channel is not controlled for in the analysis, U.S. recessions do not have statistically significant impacts on growth in Nigeria both in the short-run and long-run. (ii) When the trade channel is controlled for, the recessions have statistically significant impacts on growth via the channel, but only in the short-run and with a lapse of time. (iii) The positive impact of trade on growth occurs in the long-run, even in the face of the recessions. The key policy implication of these findings for African countries is that trade is indeed influential in them, but they need to diversify their trade away from large economies, such as the U.S., by increasing intra-Africa trade, in order to limit the effects of shocks from such economies and maximize the benefits of trade. This requires better performance of Africa’s trade blocs (e.g. ECOWAS) and the coordination of per jure and de facto trade policies within the continent generally. JEL Codes:F1, F14, E32, O51, O55