Trade Openness and Economic Growth Nexus: The Role of Bank Credits in Nigeria

Abstract

It has been argued by economists that the more open economies tend to grow faster than the closed ones. This is because trade openness promotes efficiency in resource allocation, thereby stimulating local and international competition. This study empirically investigates the role of private sector credit in determining trade openness and economic growth nexus in a developing country such as Nigeria, using time series data spanning from 1981 to 2020. To achieve the objective, the Augmented Dickey-Fuller (ADF) test was conducted to check the stationarity, which was a mix of orders I (1) and I (0). The Auto-Regressive Distributed Lag (ARDL) test and the Error Correction Mechanism were also employed to check the relationship among the variables. The study concludes that trade openness, when moderated by a reduction in bank credit will stimulate economic growth, while reducing both Gross fixed capital formation and exchange rates. In the short run however, exchange rate and Gross fixed capital formation both reduce economic growth. The study therefore recommends that governments at all levels should work to increase gross fixed capital formation in order to spur investment in export commodities. Also, commercial banks should give single digit credits to investors in export-led industries

Keywords

References