Causal analysis of trade openness, government expenditures and economic growth in Nigeria (1980-2020): Recalling economic policy corrective actions

Abstract This research investigates the causality relationship between trade openness, government expenditures and investment in infrastructure's relative advantage of economic growth for recalling economic policy corrective actions. Based on the theory of comparative advantage and elementary neoclassical trade model that concentrating on different productivity would improve trade and development potentials of the country. It employs Johansen cointegration and Granger causality techniques to examine the comparative advantage theory and assess the short-run and long-run relationship. Annual time-series data from 1980 to 2020 shows the relationship between trade openness, government expenditures on education and investment in infrastructure are statistically significant for economic growth in Nigeria. There is a cointegration relationship among the indicators with relative advantage, and Granger causality reveals short-run. There is a bidirectional relationship between trade openness and economic growth. While a unidirectional relationship between trade openness and infrastructural development on economic growth. Hence, this research realize that human capital development does not affect economic growth. The policy recommendations imply that all the indicators are solid macroeconomic factors following the empirical analysis for emphasizing the relative advantage of trade openness in Nigeria. The policymakers should consider trade diversification through development of infrastructure, human capital development to increase productivity toward economic growth.