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EXPORT DIVERSIFICATION AND ITS IMPACT ON ECONOMIC GROWTH IN NIGERIA: 1970 – 2015

EXPORT DIVERSIFICATION AND ITS IMPACT ON ECONOMIC GROWTH IN NIGERIA: 1970 – 2015

 

Abstract: Export diversification has become one of the most important economic policy objectives of growth and development strategies for many countries, including Nigeria. Export diversification is important for three main reasons, namely reducing macroeconomic instability, revenue expansion and improving value-added. This study is conducted with the broad objective of investigating both the short-run and the long-run impacts of export diversification on economic growth in Nigeria for the period 1970-2015. The 46-year period of investigation was bifurcated into two main periods: short-run periods of pre-SAP (1970-1985) and post-SAP (1986-2015), in order to ascertain whether there was a structural change in the relationship between export diversification and economic growth in Nigeria. Findings from this study show that the mean index of diversification prior to the implementation of SAP was 1.005 while that for the postSAP period was 0.945. On the average, the mean index of diversification for the entire 4-year period was about 0.98. This shows that in both time horizons, there was a high degree of export concentration – particularly primary product exports. Adopting an Error Correction Model (ECM) as a technique of analysis, the study exploits time series data to estimate both the short-run and long-run dynamic relationships between export diversification and economic growth in Nigeria for the period under investigation. It found the speed of adjustment (1 - l) at which per capita gross domestic product returns to its long-run equilibrium position to be about 66 per cent within a year, when the other variables wander away from their equilibrium values. In particular, the least squares estimates indicate that GDP per capita in the previous period, growth of non-oil sectors, the strength of institutions and the intensity of natural resources are critical determinants in explaining the export-growth process for Nigeria. The Herfindahl index and oil exports were found to have a negative impact on economic growth, while the real exchange rate variable was found to be less significant in explaining economic growth. The study concludes with far-reaching recommendations such as getting the “horizontal basics” right by way of sound macroeconomic management to contain the boom-burst cycle in periods of economic recession, sound trade and exchange rate policies to enhance the competitiveness of domestic output, strong institutions to drive the diversification process, and expanding the range of export goods to reduce overdependence on oil and to diversify the economy into non-oil exports, such as manufacturing and services, amongst others.

JEL classification: E32, F1, H30, L32, O11, Q32

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