Analysis of Trade Balance Dynamics under the Influence of Structural Adjustment Mechanisms
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Abstract
Nigeria’s trade balance is influenced by key macroeconomic variables, particularly those shaped by structural adjustment policies. This study investigates the effects of GDP, inflation, and exchange rate depreciation on Nigeria’s trade balance, aiming to provide deeper insights into their long-term relationships. Specifically, the research examines how these factors contribute to trade performance and economic stability. To achieve this, the study employs econometric techniques, including the Unit Root Test (Augmented Dickey-Fuller), the Autoregressive Distributed Lag (ARDL) Bounds Co-integration test, ARDL-Error Correction Model (ECM), and the cumulative sum (CUSUM) chart for stability diagnostics. Analysis of data from 1996 to 2022 reveals a positive long-run relationship between GDP, inflation, and trade balance, while exchange rate depreciation has a significant negative effect. This suggests that while economic growth and moderate inflation may support trade, excessive currency depreciation weakens Nigeria’s trade balance. These findings underscore the need for policies that manage exchange rate volatility, promote economic diversification, and stabilize inflation to enhance trade performance. The study recommends long-term structural reforms that reduce dependence on oil exports, strengthen the non-oil sector, and ensure exchange rate stability. A well-coordinated macroeconomic framework integrating monetary and fiscal measures is essential for maintaining a stable and favorable trade balance. Ensuring sustainable economic growth while fostering an export-driven economy will be critical in improving Nigeria’s trade performance and overall economic resilience.
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