Institutional Quality, Trade Protection Policy and Macroeconomic Performance in Nigeria

Abstract

This study investigates the role of institutional quality on the causal nexus between trade protectionist policy and macroeconomic performance in Nigeria. Annual data on the exchange rate, corruption, unemployment, economic growth, trade protectionist policy, government capital expenditure, government expenditure on education, and government effectiveness covering the period from 1981 to 2019 were sourced from World Bank Development Indicators (WDI), Central Bank of Nigeria (CBN) Statistical Bulletin and International Country Risk Guide (ICRGs). Data collected were analyzed using the autoregressive distributed lag (ARDL) model and VAR Granger causality test. The results showed that due to the high level of corruption and low level of government effectiveness in the economy, institutional quality plays a negative role in the relationship between trade protectionist policy and macroeconomic performance in Nigeria. The study also found that trade protectionist policy causes and significantly explains changes in the exchange rate and economic growth in Nigeria while unemployment causes and explains changes in trade protectionist policy in Nigeria. This study concluded that the absence of institutional quality mitigates the effectiveness of trade protectionist policy on macroeconomic performance in Nigeria.