Is the Nigerian economy balance-of-payments constrained? Empirical evidence from multi-sectoral model with intermediate imports

ABSTRACT

This paper seeks to determine Nigeria’s long-run growth path using a multi-sectoral version of the balance of payment constrained growth model from 1981 to 2016. It particularly contends that the actual growth of an economy is highly connected to sectoral differences in elasticities of income of tradable goods produced in the economy. The autoregressive distributed lag model (ARDL) approach is employed to obtain the required elasticities for the determination of the equilibrium growth rate. In line with research expectations, the first outcome of the study reveals that while, machinery and equipment turned out with the highest income elasticity; animal, fats and vegetable products was the lowest. This suggests that transition from primary production to the production of products of hi-tech products is necessary for growth. Second, high reliance on intermediate imports with high income elasticity could harm growth in the long run.

KEYWORDS:

• Nigerian economy
• income elasticities
• balance-of-payment constraint
• intermediate imports
• ARDL
• error correction model

JEL Classifications:

• F41
• F4
• F
• F43
• F4
• F
• F14
• F1
• F
• E12
• Q21

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 The period of the Third National Development Plan

2 y₁= $\frac{x}{{\eta }_m}$ or y₂= $\frac{{\eta }_x{y}^{\ast }}{{\eta }_m}$are the balance of payment constrained growth rates. Here $x$, $y^{\ast },{\eta }_m$ and ${\eta }_x$ represent real export growth, world real income growth, import elasticity and export elasticity, respectively. y₁ and y₂ are respectively known as the weak and strong versions of Thirlwall’s model. Unlike the strong form of the hypothesis; the weak form makes use of the exogenous growth rate of real exports rather than the product of its export elasticity and the growth rate of world trade as implied by the strong form of the model (See Thirlwall 1979 for derivation and Perraton 2003 for details regarding weak and strong forms of the model)