Trading Shock, Economic Growth and Macroeconomic Fluctuation in Nigeria: Empirical Evidence from Structural Vector Error Correction Mechanism Model

Abstract

This study investigates the impact of trade shocks on economic growth and macroeconomic fluctuations in Nigeria, focusing on oil price and export trade. The aim of the study is to analyse how external trade-related shocks, particularly oil price fluctuations and export trade dynamics, affect Nigeria's economic stability. The study adopts an empirical methodology using quarterly macroeconomic data, covering Real GDP, export, import, and oil prices, spanning over 164 data points. The econometric techniques employed include Unit Root Test, Co-integration Analysis, Structural Vector Error Correction Model (SVECM), Granger Causality, Impulse Response Function, and Forecast Error Variance Decomposition. The theoretical framework is rooted in the Theory of Comparative Advantage and Dutch Disease, which help explain the effects of oil dependency on Nigeria’s economic performance. The findings of the study reveal that oil price fluctuations and export trade dynamics significantly influence macroeconomic stability, while import trade has a less pronounced effect on economic growth. The study concludes that Nigeria’s reliance on oil exports makes the economy vulnerable to external shocks, especially oil price volatility, thereby undermining long-term stability. Therefore, the study recommends diversifying Nigeria’s export base, strengthening regional trade agreements such as the African Continental Free Trade Area (AfCFTA), and improving trade balance management to mitigate the adverse effects of trade shocks on economic growth.
Keywords: Economic Growth, Oil Price Shocks, Trade Openness, Trade Shocks.