Economic openness, institutional quality and economic growth in Nigeria

Economic openness has been argued to be an enabler of growth when supported with appropriate policies. This study investigates the effects of economic openness on economic growth in Nigeria. It also assesses the role of institutions in enabling the relationship between economic openness and economic growth. Using quarterly series, vector error correction model and relevant diagnostic tests, the study finds that in the short term, there is no direct relationship between trade openness and economic growth. However, in the long term, trade openness has a positive impact on economic growth when institutional quality is not considered. Yet, when trade openness interacts with institutional quality, it has a negative effect on economic growth. On the other hand, financial openness has a causal effect on economic growth in the short term, and this relationship remains consistent even after considering institutional quality. However, in the long term, there is a negative association between financial openness and economic growth, regardless of institutional quality. The study therefore recommends that Nigerian policymakers should consistently evaluate the effects of trade and financial openness on economic growth, considering institutional quality, and implement comprehensive policies that encompass trade, financial openness, and institutional reforms. © The Author(s), under exclusive licence to Springer Nature Switzerland AG 2024.