Trade Openness And Inflation: Empirical Explanation of The Nexus In Nigeria

Abstract

This study aims to examine the effect of trade openness on the inflation rate in Nigeria using time series data collected from secondary sources. The data were analyzed using EViews10, revealing a cointegrating and one-way Granger causality relationship between the inflation rate and trade openness. Both short-run and long-run results demonstrate a significant and negative relationship between the inflation rate and trade openness in Nigeria. These findings are crucial for governments and policymakers when making decisions regarding the consumer price index and trade openness. We conclude that the government should work towards full diversification of the economy away from oil exports, manage the degree of trade liberalization, control the influx of goods, and regulate the money supply. This study adds to the debate on the inflation rate and trade openness in Nigeria, addressing both short-run and long-run effects. It also highlights the need for further research, given the limited studies focusing on the impact of trade openness measured as the value of net export divided by gross domestic product. Finally, this paper contributes to the scant literature on this subject.