Effect of foreign trade on inclusive growth in Nigeria: A vector Error Correction Model (VECM) approach.

This study explored the effect of foreign trade on inclusive growth in Nigeria, focusing on the critical role of trade openness in fostering inclusive economic growth. Specifically, the study investigated the relationship between inclusive growth (IGRT) and important macroeconomic factors including trade openness (OPEN), labour force participation (LAB), exchange rate (EXR), foreign direct investment (FDI), and inflation (INF) from the period of 1985 to 2023. Secondary data were obtained from the World Development Indicators and the Central Bank of Nigeria. The Vector Error Correction Model technique was employed to capture both short-run and long-run dynamics. The findings reveal that trade openness has a positive but moderate long-run influence on inclusive growth, with a coefficient of 0.006, statistically significant at the 5% level. In contrast, inflation and exchange rate depreciation were found to have negative effects on inclusive growth, with inflation significantly undermining growth inclusivity.Labour force participation positively promotes inclusive growth, whereas foreign direct investment (FDI) appears to have a minimal impact. The short-run dynamics indicate that trade openness and other variables have limited direct effects on inclusive growth, with structural rigidities in Nigeria’s economy slowing the adjustment process. The study concluded that trade openness helps to promote inclusive growth, but its influence is moderate and requires additional policies such as human capital development, infrastructural upgrades, and exchange rate stabilisation to fully achieve its inclusivity. Policymakers should prioritise trade facilitation measures, reduce tariff and non-tariff barriers, and investing in trade-enabling infrastructure.