Explaining Nigeria's Economic Growth: Balance of Payments Constrained Growth Approach With External and Internal Imbalances

Panshak Y., CİVCİR İ., Ozdeser H.

SOUTH AFRICAN JOURNAL OF ECONOMICS, vol.87, no.3, pp.376-413, 2019 (SSCI) identifier

  • Publication Type: Article / Article
  • Volume: 87 Issue: 3
  • Publication Date: 2019
  • Doi Number: 10.1111/saje.12216
  • Journal Name: SOUTH AFRICAN JOURNAL OF ECONOMICS
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.376-413
  • Keywords: balance of payments constraint, relative prices, foreign content in the aggregate demand components, Nigeria
  • Ankara University Affiliated: Yes

Abstract

This study employs a system estimator to examine the validity of balance of payment constrained growth model in the case of Nigeria. We modified a version of Thirlwall's model developed by Soukiazis et al. (2014) to incorporate the role of foreign contents in growth process. The new version of the model improves significantly explaining the growth in Nigeria. The outcome of this study shows that imported intermediate and capital goods significantly contribute to manufacturing export and domestic investment growth. However, high reliance on the imports of intermediate goods constrains economic growth. World real income exerts significant effect on aggregate exports, similar arguments could not be established when the manufacturing export sector is considered in isolation. Our results reveal that economic growth in Nigeria is constrained by internal and external imbalances. The study recommends among others increasing the manufactured export share, efficient use of oil rents as well as containing budget deficit within acceptable threshold to position the economy on a viable growth path.