Abstract

Nigeria still faces macroeconomic issues such as poverty, exchange rate volatility, declining foreign reserves, negative trade and balance of payments deficits, inadequate foreign direct investment inflows, and other un favourable world trade dynamics exacerbated by the growing globalisation of the economy, despite its im mense potential for inclusive growth. This study interrogated the dynamic interface between trade openness, exchange rate, foreign direct investment and economic growth in Nigeria using data from 1980 to 2020 along with the Autoregressive Distributed Lag and Granger causality tests approach. The study adopted an extend ed Cobb–Douglas production function with disaggregated trade openness measures such as oil and non-oil exports, oil and non-oil imports while foreign direct investment inflows, domestic capital formation, nominal exchange rate and labour force were used control variables. The findings indicate a compelling co-integration relationship among the study variables, as well as a noticeable debilitating effect of oil exports and imports on Nigerian economic growth while non-oil imports supported long-term inclusive growth by providing domestic enterprises access to foreign innovations and intermediary goods. The causality tests results indicated an outstanding one-way causal relationship running from oil and non-oil imports and exports, domestic capital formation and labour force to economic growth and a bi-directional causality between foreign direct invest ment inflow and economic growth. As a result, the study advocated for diversifying exports from oil to viable non-oil products and the effective use of liberal and protectionists trade policy to limit imports and improve domestic industries global competitiveness.

DOI: doi.org/10.63721/26JESD0133

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