The Impact of Trade Balances and Inclusive Growth on Economic Development in Nigeria

Abstract

This study investigates the combined impact of trade balances, inclusive growth, and economic development. Accordingly, an inclusive growth index was computed for Nigeria using ten indicators through principal component analysis in EViews 9 to examine how trade balance and inclusive growth variables impact economic development. The error correction mechanism and autoregressive distributed lag model were employed to estimate the effect of trade balances and the inclusive growth index on economic development, given the order of integration. The results revealed a negative relationship between the inclusive growth index, openness, exchange rate, inflation rate, interest rate, and economic development in Nigeria. Conversely, a positive relationship was found between the balance of payments, foreign direct investment, reserves, capital market, total labour force, and economic development in both the long and short run. Overall, the model was relevant in explaining the dynamics of trade balances and inclusive growth in Nigeria, with a relatively high explanatory power of approximately 53 percent for the per capita gross domestic product equation. The paper recommends that the government consciously direct policy actions towards enhancing inclusivity in economic growth and trade balances to achieve their full potential and improve economic development in Nigeria. This should be facilitated by promoting specialisation in the export of primary commodities that match imports, improving capital market efficiency, creating employment through a well-managed labour force, and reducing poverty, inflation, and interest rates. A balanced trade policy that enhances inclusivity in economic growth is essential for sustainable development in Nigeria.