Evaluation of Nigerian balance of trade via cointegrated VAR model approach

Abstract

The impact of Exchange rate, Money supply, GDP and FDI on trade balance has been at the center of research over time with varying empirical evidences for different countries. This paper attempts an empirical investigation of the impact of exchange rate (EXR), money supply (M2), gross domestic product (GDP) and foreign direct investment (FDI) on Nigerian trade balance using the Johansen co
integration. Annual time series data from 1981 to 2016 was used. The empirical results show that there exist a long-run relationship between trade balance and its determinants such as; M2, EXR, GDP and FDI. The research concludes with important implications for policy makers because it provides evidence supporting the fact that there is a long run relationship between the variables and the independent variables have significant impact on trade balance adjustment and that appreciation of the exchange rate worsens trade balance of Nigeria in the long run.