Efficacy of Trade Protectionism on Nigeria’s Macroeconomic Performance: An ARDL Assessment

Abstract

Aim: Amid the rising importance of trade expansion, Nigeria re-evaluated its trade protection strategy to support key local industries and promote local production. However, the increased level of trade protectionism in Nigeria is yet to yield the needed improvement in employment, economic growth or general economic performance. This paper therefore investigates the nexus between Nigeria’s trade protectionism strategy as well as economic performance. Method: Premised on the endogenous growth theory, this study employs annual data covering the period from 1981 to 2019 and the autoregressive distributed lag (ARDL) model to estimate both short and long run effects of trade protection on macroeconomic performance. Result: The findings reveal that trade protection policy strengthens exchange rate only in the short run. While it exacerbates employment and economic growth in the short-run, it contributes positively to both in the long-run. Conclusion: Trade protection policy imposes short run macroeconomic costs but yields long run benefits in employment and economic growth, thus indicating a transition from adjustment costs to structural gains over time. Implications: Trade protection policy acts as a temporary exchange rate stabilization tool and entails initial costs such as high production costs, unemployment and low economic growth, but generates long-term improvements in employment and economic growth. Trade openness and trade protection measures should thus be viewed as complementary indicators of trade protectionist policy in Nigeria. Recommendation: Government should strengthen investment in technology, human capital and institutional quality; provide more fiscal support and social protection programs to cushion short-run adjustment pressures as well as diversify exports toward non-oil industries to enhance long-term exchange rate and macroeconomic stability in Nigeria.