Economic Openness, Institutional Quality and Economic Growth in Nigeria.

Abstract

Abstract Economic openness has been argued to be an enabler of growth when supported with appropriate policies. This study investigates the effects of economic openness on economic growth in Nigeria. It also assesses the role of institutions in enabling the relationship between economic openness and economic growth. Using annual series, vector error correction model and causality test, the study shows that economic openness have positive but insignificant effect on economic growth. With the inclusion of institutional quality, the relationship between economic (trade and financial) openness and economic growth shows weak significance, however with negative effect. The implication of these findings is that activities put in place to ensure free flow of goods and services and capital inflows have not contributed significantly to economic growth. Furthermore, efforts to ensure government effectiveness have not fully translated into ensuring improved economic growth and current quality of institution might not necessarily ensure a stronger economic openness-economic growth nexus. The study recommends improved flows of goods and services with special focus on import reduction and export promotion and also recommends the promotion of stronger and quality institutions that is able to make relevant trade and financial liberalization policies that will not distort but improve economic growth significantly.