Trade Liberalization, Export Diversification and Economic Growth in Nigeria

Abstract This study investigated the dynamic short-run and long-run effects of trade liberalization, export diversification, and economic growth on Nigeria over the period 1981 to 2024, utilizing the Autoregressive Distributed Lag (ARDL) modelling framework. The empirical analysis is structured into three interrelated models. Model 1 examined the impact of trade liberalization— proxied by trade openness) and infrastructure (INFR)—on export diversification (EDIV). The results revealed a positive and statistically significant relationship, indicating that increased openness to trade and improvements in infrastructure significantly enhance Nigeria’s export diversification. Model 2 assessed the influence of export diversification, capital formation (CAP), labour force growth (LAB), and trade liberalization on real GDP growth (GDPG). Findings showed that these variables significantly contribute to economic development by fostering industrial diversification, stimulating innovation, creating employment opportunities, and increasing foreign exchange earnings. Model 3 synthesized the insights from the first two models, showing that export diversification, capital formation, and labour force growth jointly mediate the relationship between trade liberalization and economic growth, with statistically significant effects in both the short and long run. However, the analysis also identified negative relationships between inflation (INF), the real effective exchange rate (REER), and key economic indicators across the models. The study concluded that sustainable economic growth through trade liberalization and export diversification requires robust macroeconomic stability, quality infrastructure investment, strategic FDI targeting, and sound monetary policy. Keywords: trade liberalization, export diversification, labour force growth rate, Foreign Direct Investment, infrastructure and inflation rate