Effect of Globalization on Economic Growth in Nigeria

Abstract

This study explores the impact of globalization on economic growth in Nigeria from 1981 to 2021. The study employs various econometric techniques to analyze the data, including unit root tests, cointegration bound tests, and error correction modeling. The unit root tests reveal that certain key variables, such as the degree of openness (DOP), exchange rate (EXCR), interest rate (INTR), and foreign direct investment (LNFDI), exhibit stationarity at the first difference level (I(1)), while inflation rate (INF) and real GDP growth rate (RGDPGR) remain stationary at the level (I(0)). This mixed stationarity necessitates the use of the autoregressive distributed lag (ARDL) method for analysis. Cointegration bound tests support the existence of a long-run relationship among the variables. The F-statistic exceeds the upper and lower bounds, leading to the rejection of the null hypothesis of no level relationship. Further analysis using the ARDL model reveals both short-run and long-run relationships. In the short run, certain variables like exchange rates and interest rates significantly impact GDP growth, with varying degrees of influence. However, foreign direct investment (FDI) at the current time has a negative effect on GDP growth in the short run. In the long run, DOP, EXCR, and INF positively contribute to GDP growth, while interest rates and FDI negatively impact it. The error correction term is negative and significant, indicating that any deviations from the long-run equilibrium are corrected over time, with a speed of adjustment of approximately 58%. The results suggest that globalization, as represented by DOP and EXCR, has a positive influence on Nigeria’s economic growth, while the impact of interest rates and FDI is more complex. Policymakers should consider these findings when formulating economic policies to promote sustainable growth in Nigeria. These findings provide valuable insights into the dynamics of globalization and economic growth in Nigeria and contribute to the ongoing discussion on the role of globalization in developing economies.