Import Penetration, FDI Inflows and Non-Oil Export Performance in Nigeria (1981-2012): A Cointegration and Error Correction Analysis

Abstract

The paper investigates the effects of import penetration and FDI inflows on the performance of Nigeria’s non-oil exports in the period from 1981-2012 using the methodology of ARDL (Bounds test) approach to cointegration and error correction analysis. The analysis indicates that import penetration impacted positively on the performance of Nigeria’s non-oil export in the short run, though its long run impact was negative. The short run and long run impacts of FDI on non-oil export performance were not statistically significant. Further evidence from the analysis is that currency depreciation positively impacted the performance of Nigeria’s non-oil export in the long run, but its short run impact was not significant. The paper recommends some amount of control of the composition of imports to ensure that there is preponderance of industrial inputs needed for local production over finished products, as well as reduction in tariffs on imported raw materials and technologies utilized in domestic production, to boost domestic output of goods and services, enhance their qualities and hence, enhance the volume and value (attractiveness, competitiveness) of the country’s export items in foreign markets, and central bank’s timely intervention in the nation’s foreign exchange market to prevent over appreciation of the domestic currency, setting its exchange rate at levels consistent with improved export trade.

Keywords: Non-oil Export Performance, Import Penetration, Foreign Direct Investment, Nigeria