Determinants of International Trade in Nigeria

Abstract

Nigeria has consistently contended with an increasingly volatile and trade flow imbalance for the past one decade which was partly exacerbate by the succession of crises buffeting the global economy, with the COVID-19 pandemic that gave way to the war in Ukraine, inflation, monetary tightening, and widespread debt distress. This study examines the determinants of international trade in Nigeria from 1999-2022 using econometric regression technique of the Ordinary Least Square (OLS) to model the extent to which cost of doing business, import tariff, inflation rate, infrastructure and exchange rate has influenced international trade proxied by trade openness in Nigeria. All data used are secondary data obtained from the Statistical Bulletin of Central Bank of Nigeria (CBN) and National Bureau of Statistics (NBS) annual publications and World Bank DataBank. Results of the OLS revealed that infrastructure and exchange rate have a positive impact on international trade in Nigeria. On the other hand, import tariff, cost of doing business and inflation has a negative impact on international trade in Nigeria. Thus, increase in import tariff, cost of doing business and inflation will bring about a decline in foreign trade in Nigeria. The study revealed that cost of doing business, import tariffs, inflation rate, infrastructure and exchange rate are good and are the major determinants of international trade in Nigeria because the coefficient of determination (R2) is given as 53%, which shows that the explanatory power of the variables is moderately strong. The study recommends that the government should create an environment that fosters business growth by investing in energy-efficient technologies and advocating for improvements in the energy sector to reduce costs and ensure a stable power supply. The government should simplify import and export procedures to facilitate international trade by aassessing the economic impact of existing tariffs on both domestic industries and consumers. This will help to consider the potential benefits of reducing tariffs, such as increased competition, lower prices for consumers, and improved market access for exporters among others.