External Sector Macroeconomic Indices and Real Economy of Nigeria: An Empirical Analysis (1981 – 2020)

In recent times, the external sector of Nigeria’s economy has been characterized by instability, while the performance of her Real Economic Growth (RGDP) has remained below average. This study, therefore, investigated the relationship between her (RGDP), and some external sector macroeconomic indices, namely: Foreign Exchange Rate (FXR), Total Export (EXP). Trade Openness (TOR), Total Import (IMP), External Debt (EXTD), External Debt Service Charges, (EXDINT) and Foreign Direct Investment (FDIR), CBN is the source of the study data, spanning for a period of 1981 to 2020. The study applied Co-integration technique, Error Correction Model (ECM) and Granger Causality tests for the econometric analysis. Evidence from empirical results confirmed that, in the long run, only FDIR contributed positively to (RGDP), while the rest, had significant adverse effect on RGDP. The Granger Causality test established that only FDIR had bilateral relationship with RGDP while RGDP preceded EXP, TOR and FXR, implying that RGDP determines those variables without a feedback. EXTD, EXDINT and IMP maintained independent causal relationship. The ECM coeficient (-1.14), is significant and correctly signed (negative). It measures the speed of the adjustment, at which equilibrium is restored to RGDP, after the short-run disequilibrium in the selected indices. The implication is that RGDP growth process in Nigeria, in the long run, adjusts slowly to the changes in the selected indices, indicating a Policy lag effect. Consequently, Monetary authority should maintain efficient debt monitoring and management; effective and sustainable exchange rate management; infrastructural and technological development to beep up exportation. They should lay emphasis on stable political environment and sustainable economic policies to encourage more FDI. The Policy makers should make policies that would match the magnitude of the expected changes.