Analysis of Government External Trade Balance and Economic Performance in Nigeria

Abstract

This study examines the analysis of government external trade balance and economic performance in Nigeria, with particular focus on government component imports and exports as key determinants of gross domestic product (GDP). Using annual time series data from 1981 to 2024, the study employed descriptive statistics, unit root tests, Johansen cointegration, and the Vector Error Correction Model (VECM) to establish both short-run dynamics and long-run relationships among the variables. The findings revealed that government component imports exert a positive and statistically significant effect on GDP, suggesting that importation of capital goods and essential products contributes to productive activities and output growth in the short term, although excessive dependence may weaken fiscal sustainability. Similarly, government component exports, dominated by crude oil, were found to positively and significantly influence GDP, affirming the role of external earnings in supporting growth, while also exposing the economy to volatility from global price shocks. The cointegration results confirmed the existence of a stable long-run equilibrium among trade and output variables, with a strong adjustment mechanism indicated by the error correction term. The post-estimation diagnostics, including residual autocorrelation, heteroskedasticity, and multicollinearity tests, confirmed that the model is stable, well-specified, and reliable, supporting the validity of the findings. The study concludes that while trade remains a vital driver of Nigeria’s economic performance, diversification of exports, reduction in import dependence, and improved governance are necessary to ensure long-term stability.