







































American Interdisciplinary Journal of Business and Economics 

ISSN: 2837-1909| Impact Factor : 6.71 

Volume. 10, Number 4; October-December, 2023; 

Published By: Scientific and Academic Development Institute (SADI) 

8933 Willis Ave Los Angeles, California 

https://sadijournals.org/index.php/AIJBE| editorial@sadijournals.org  

 

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EFFECT OF PROTECTIONIST POLICIES ON ECONOMY 

DEVELOPMENT IN NIGERIA 

 

 
Balogun David Ibukun and Prof. Okechukwu E. U. 

Department of Business Administration, ESUT Business School, Enugu State University of Science and 

Technology 

DOI: https://doi.org/10.5281/zenodo.10018687 

Abstract: The study was carried out to determine the effect of protectionist policies on economic development, 

in Nigeria the specific objectives are to: Examine the existence of a long run relationship between trade openness 

and economic development in Nigeria, Evaluate the effect of trade openness on economic development in Nigeria 

and evaluate the effect of import tariffs and exchange rate on economic development in Nigeria. This study 

employs the Classical Linear Regression Model to investigate the effect of protectionist policies on economic 

development in Nigeria. The Classical linear regression model is useful when the relationship that exists between 

variables is linear. The results of the ordinary least squares indicate that protectionist policies have a mixture of 

significant and insignificant effects on gross domestic product. The protectionist variables used in the study 

include import tariffs, exchange rates, and trade openness. The study recommended among others that there 

should be a deliberate effort on the part of the government to make policies that will favour the exportation of 

products. This is because doing such means a high trade openness, and will have a positive effect on the economic 

development of the country, with the market for local goods being expanded, and the pool of natural resources 

and human resources widened.  

Keywords: Development, Economy, Effect, Policies, Protectionist 

 

1.1 Introduction 

Protectionism refers to government policies that restrict international trade to help domestic industries. 

Protectionist policies are usually implemented with the goal to improve economic activity within a domestic 

economy but can also be implemented for safety or quality concerns.  Protectionist policies are typically focused 

on imports but may also involve other aspects of international trade such as product standards and government 

subsidies.  The need for the promotion of economic development, revenue generation, and trade surplus led 

Nigeria in the early 60s to embark on economic strategies that reinforce the effect of trade on economic 

development in the early 1960s. These policies aimed to address issues concerning the shrinking foreign exchange 

reserve and the weakening exchange rate (Madichie, Osagu & Eze, 2018). In an attempt to revive the 

manufacturing sector, the government in the third quarter of 2019 closed all its land borders restricting all 

manufactured goods, especially rice, poultry products, and textiles that can be produced locally from being 

imported into the country, especially through the land border. The justification by the government was premised 

on the ground that it has been difficult for the agricultural and manufacturing sector to function optimally due to 

the influx of foreign products that can be produced locally; that the land borders has been a medium of evading 

duties, especially at the Benin Republic axis of the country which has majorly become an entrepôt for already 

manufactured goods which have the final destination as Nigeria (Eselebor, 2020). Goods are also routed through 



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the Benin axis in order to evade import duties and quality assurance. The government also maintained that the 

land borders have been a channel through which illegal arms get into the country and this, therefore, made 

combating insecurity an uphill task coupled with being the media for illegal exporting of subsidized petroleum 

products which has a devastating effect on the economy (Mbaye, Golub, Cheihk, 2019).  

Despite the justification of this policy, critics have maintained that Nigeria is both a sovereign, developing country 

and also a member of many international organizations such as the Economic Community of West African States 

(ECOWAS), African Union (AU), and World Trade Organisation (WTO) which support free trade and that she 

also signed the free trade agreement as a member of the African Continental Free Trade Area (AFTFCA). In light 

of this, the policy was viewed by the critics as a violation of agreements of these international organisations and 

most especially just signed AFTFCA as the tenets of these organisations contradict the operation of Trade 

protectionism (Kolawole, Ojelade & Mosobalaje, 2020). The critics also maintained that the world economy has 

become increasingly linked through expanded international trade in services, primary and manufactured goods, 

international portfolio investments thereby encouraging importing and exporting of these goods among nations 

and that closing these borders would only mean dragging the Nigerian economy back to the stone age (Ugwuja 

and Chukwukere, 2021). Despite these arguments, the federal government has maintained that no criticism can 

sufficiently supersede the issue of insecurity, unemployment and protection of local manufacturing industries 

which dominates the manufacturing sector and the economy as a whole. 

“Nigeria’s trade policy has moved in a heavily protectionist direction, with an escalation of import restrictions 

through higher tariffs and levies, import bans, foreign exchange limitations, and border closures. In 2015, the 

Central Bank of Nigeria announced restrictions on access to foreign exchange for the importation of certain 

products that could be produced locally, with the aim of bolstering foreign exchange reserves and supporting 

domestic industries. The border closure was accompanied by a significant rise in inflation, especially for food 

products that are affected by foreign exchange restrictions. Despite the seemingly high rate of trade protectionist 

policy in Nigeria, economic development has been relatively low (Vagianou, 2016). The study is being carried 

out to examine the effect of protectionist policies on economic development. 

1.2 Statement of the Problem 

Protectionism or the use of tariffs, subsidies, import quotas and other trade restrictive policies to protect domestic 

industries is fast increasing on the global landscape and prompting a major shift away from global free trade. 

Between 2009 and 2015, over 6,000 new protectionist measures were implemented globally, as opposed to the 

2,500 policies that support free trade, Nigeria inclusive.  

Nigeria has continued to experience underdevelopment despite the economic growth of the early and late sixties. 

The crisis is evidenced in low productivity, high rates of inflation, high rates of unemployment, deterioration in 

standard of living, huge external debts, social and political chaos etc.  

Governments often implement protectionist policies with a view to improving national economic activities, but 

such policies has triggered a ripple of negative consequences for both the individual countries and the global 

economy as a whole. Amongst others, protectionism stifles innovation and competition, reduces consumer 

spending, and triggers trade wars among nations, leading to stagnation of economic growth. 

1.3 Objectives of the Study 

The general objective of this study is to determine the effect of protectionist policies on economic development, 

Nigeria while the specific objectives are to:  

i. Examine the existence of a long-run relationship between trade openness and economic development in 

Nigeria.  

ii. Evaluate the effect of trade openness on economic development in Nigeria.  

iii. Evaluate the effect of import tariffs and exchange rates on economic development in Nigeria. 

 

 



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1.4  Statement of Hypotheses 

i.         There is no existing long-run relationship between protectionist policies and economic development in 

Nigeria 

ii.         There is no significant effect of trade openness on economic development in Nigeria 

iii. There are no significant effects of import tariffs and exchange rates on economic development in Nigeria 

REVIEW OF RELATED LITERATURE 

2.1 Conceptual Review 

2.1.1 Protectionist Policies 

Protectionism consists of managing the international exchanges of goods and services between national and 

regional economies. This falls into regulation of imports and the management of exports, which itself is divided 

into export promotion and import controls. Trade restrictions are designed to protect domestic interests threatened 

by foreign competition. As a result, national governments have resorted to a growing range of measures aimed at 

supporting both small and large exporting companies, whether through technical assistance, or trade incentive. A 

protectionist trade policy allows the government of a country to promote domestic producers, and thereby boost 

the domestic production of goods and services by imposing tariffs or otherwise limiting foreign goods and 

services in the marketplace. (CFI team, 2019).  

Types of Protectionism 

Protectionist policies come in different forms, including: 

1. Tariffs: The taxes or duties imposed on imports are known as tariffs. Tariffs increase the price of imported 

goods in the domestic market, which, consequently, reduces the demand for them. Consider the following 

example, which analyzes the UK market for US-made shoes. Due to the imposition of tariffs, the price for the 

product increases from GBP100 (P1) to GBP120 (P2). The demand for US-made shoes in the UK market 

decreases (from Q2 to Q4). 

2. Quotas: Quotas are restrictions on the volume of imports for a particular good or service over a period of time. 

Quotas are known as a “non-tariff trade barrier.” A constraint on the supply causes an increase in the prices of 

imported goods, reducing the demand in the domestic market. 

3. Subsidies: Subsidies are negative taxes or tax credits that are given to domestic producers by the government. 

They create a discrepancy between the price faced by consumers and the price faced by producers. 

4. Standardization: The government of a country may require all foreign products to adhere to certain guidelines. 

For instance, the UK Government may demand that all imported shoes include a certain proportion of leather. 

Standardization measures tend to reduce foreign products in the market. An economy usually adopts protectionist 

policies to encourage domestic investment in a specific industry. For instance, tariffs on the foreign import of 

shoes would encourage domestic producers to invest more resources in shoe production. In addition, nascent 

domestic shoe producers would not be at risk from established foreign shoe producers. Although domestic 

producers are better off, domestic consumers are worse off as a result of protectionist policies, as they may have 

to pay higher prices for somewhat inferior goods or services. Protectionist policies, therefore, tend to be very 

popular with businesses and very unpopular with consumers (CFI team, 2019).    

Real exchange Rate  

Exchange rate is the relative value between two currencies. It is the rate at which the amount of one currency can 

exchange for another (Kathleen Crislip, 2018). The exchange rate is the price of one currency quoted in terms of 

another currency. It is the price at which one nation’s currency is exchanged for some other nation’s currency. It 

could be at par, high, or relatively low. Thus, the exchange rate fluctuates relative to the comparative usage and 

need of the currencies concerned. According to Kimberly (2018), most exchange rates are determined by the 

foreign exchange market or forex. That is called a flexible exchange rate. For this reason, exchange rates fluctuate 

on a moment-by-moment basis. The real effective exchange rate (REER) is the weighted average of a country's 

currency in relation to an index or basket of other major currencies. The weights are determined by comparing 



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the relative trade balance of a country's currency against that of each country in the index. An increase in a nation's 

REER is an indication that its exports are becoming more expensive and its imports are becoming cheaper. It is 

losing its trade competitiveness (Adam, 2021). 

Trade Openness 

Trade openness refers to the outward or inward orientation of a given country's economy. Outward orientation 

refers to economies that take significant advantage of the opportunities to trade with other countries. Inward 

orientation refers to economies that overlook taking or are unable to take advantage of the opportunities to trade 

with other countries. Some of the trade policy decisions made by countries that empower outward or inward 

orientation are trade barriers, import-export, infrastructure, technologies, scale economies, and market 

competitiveness. Trade openness is the liberalization of the exchange of goods and services across borders through 

increased integration among countries. These countries are joined together in terms of the free movement of 

capital and labour, and free foreign trade and finance (Igudia, 2016). However, the debate surrounding the 

relationship between trade openness and economic growth in developing economies is between pro-traders and 

anti-traders (Oluwatoyin & Folasade, 2014). 

Import Tariff  

A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of 

goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of 

foreign trade and policy that taxes foreign products to encourage or safeguard the domestic industry. Protective 

tariffs are among the most widely used instruments of protectionism, along with import quotas and export quotas, 

and other non-tariff barriers to trade. Tariffs can be fixed (a constant sum per unit of imported goods or a 

percentage of the price) or variable (the amount varies according to the price). Taxing imports means people are 

less likely to buy them as they become more expensive. The intention is that they buy local products instead, 

boosting their country's economy. Tariffs, therefore, provide an incentive to develop products and replace imports 

with domestic products. Tariffs are meant to reduce pressure from foreign competition and reduce the trade deficit. 

They have historically been justified as a means to protect infant industries and to allow import substitution 

industrialization. Tariffs may also be used to rectify artificially low prices for certain imported goods, due to 

'dumping', export subsidies, or currency manipulation (Poole, 2014).  

There is a near-unanimous consensus among economists that tariffs have a negative effect on economic growth 

and economic welfare, while free trade and the reduction of trade barriers have a positive effect on economic 

growth. Although trade liberalization can sometimes result in large and unequally distributed losses and gains, 

and can, in the short run, cause significant economic dislocation of workers in import-competing sectors, free 

trade has the advantage of lowering costs of goods and services for both producers and consumers. Import tariffs 

are taxes charged by the customs authority on the importation of goods into a country. Usually, the value of the 

imported goods determines the amount that will be levied on them. In some contexts, import tariffs also mean 

import duties, customs duties, tariffs, or import tax. Economically, import tariffs are charged to generate revenue 

for the government and to protect local goods against the dominance of foreign products. However, there are other 

reasons for imposing taxes. One of them is to restrict foreign products from flooding the local market. Moreover, 

import tariffs are charged to penalize a country by means of a sanction mechanism (Rosenfeld, 2016).  

Economic Development 

The economic development of a country is defined as the development of the economic wealth of the country. 

Economic development is aimed at the overall well-being of the citizens of the country, as they are the ultimate 

beneficiaries of the development of the country. It is an increase in living standards, improvement in self-esteem 

needs, and freedom from oppression as well as a greater choice (Aliyu, 2013). The most accurate method of 

measuring development is the Human Development Index, (HDI), which takes into account literacy rates and life 

expectancy which affects productivity and could lead to economic growth. It also leads to the creation of more 

opportunities in the sectors of education, healthcare, employment, and the conservation of the environment. 



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Galloping (2014), emphasized that development is not synonymous with economic growth. Development 

according to him involves qualitative transformation, while growth is essentially quantitative increase. The goal 

of development is to increase the quality of life of the human population; economic growth is only one means to 

this end (Sunday, 2013).  

The development reflects social and economic progress and requires economic growth. Growth is a vital and 

necessary condition for development, but it is not a sufficient condition as it cannot guarantee development. The 

extent to which a country has developed may be assessed by considering a range of narrow and broad indicators, 

including per capita income, life expectancy, education, and the extent of poverty. In general, economic 

development is usually the focus of federal, state, and local governments to improve our standard of living through 

the creation of jobs, the support of innovation and new ideas, the creation of higher wealth, and the creation of an 

overall better quality of life. Economic development is often defined by others based on what it is trying to 

accomplish. Many times these objectives include building or improving infrastructure such as roads, bridges, etc.; 

improving our education system through new schools; enhancing our public safety through fire and police service; 

or incentivizing new businesses to open a location in a community. Economic development often is categorized 

into the following three major areas: Governments working on big economic objectives such as creating jobs or 

growing the economy. These initiatives can be accomplished through written laws, industry regulations, and tax 

incentives or collections. Programs that provide infrastructure and services such as bigger highways, community 

parks, new school programs and facilities, public libraries or swimming pools, new hospitals, and crime 

prevention initiatives. Job creation and business retention through workforce development programs help people 

get the needed skills and education they need. This also includes small business development programs that are 

geared to help entrepreneurs get financing or network with other small businesses (Song, G. Qi, Zhang, &. 

Vernooy 2013).          

2.2 Theoretical Framework      

2.2.1 Mercantilism Theory 

Mercantilism is economic nationalism for the purpose of building a wealthy and powerful state. Adam Smith 

coined the term “mercantile system” to describe the system of political economy that sought to enrich the country 

by restraining imports and encouraging exports. This system dominated Western European economic thought and 

policies from the sixteenth to the late eighteenth centuries. The goal of these policies was, supposedly, to achieve 

a “favorable” balance of trade that would bring gold and silver into the country and also to maintain domestic 

employment. In contrast to the agricultural system of the physiocrats or the laissez-faire of the nineteenth and 

early twentieth centuries, the mercantile system served the interests of merchants and producers such as the British 

East India Company, whose activities were protected or encouraged by the state. Mercantilism is an economic 

theory that emphasizes self-sufficiency through a favorable balance of trade. Mercantilist policies focus on the 

accumulation of wealth and resources while maintaining a positive trade balance with other countries. By 

maximizing exports and minimizing imports, mercantilism is also viewed as a form of economic protectionism 

(Magnusson, 1994). 

Originating in 16th-century Europe, mercantilism is now viewed as a mostly outdated economic theory, replaced 

by the supply and demand forces of the market economy. Present-day mercantilism commonly refers to economic 

policies that restrict the importation of foreign goods. The dominant economic theory was that the global supply 

of wealth was finite, and it was in the nation’s best interest to accumulate as much as possible. During that time, 

wealth was measured by a country’s quantity of silver and gold. To accumulate more wealth, European countries, 

such as Britain and France, would focus on maximizing their exports and minimizing imports, which resulted in 

a favorable balance of trade. For countries with a negative trade balance with a mercantilist country, the difference 

would be paid back in silver or gold. To maintain a favorable trade balance, the early mercantilist countries would 

enact imperialist policies by setting up colonies in smaller nations. The aim was to extract raw material to send 

back to the home country, where it would be refined into manufactured goods. The goods would then be resold 



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to the colonies, allowing early mercantilist nations to accumulate wealth through a positive trade balance (Smith, 

1937).  

As an economic theory, mercantilism relies on government intervention to regulate international trade and protect 

domestic industries. Mercantilist policies involve the protection of domestic corporations through regulations and 

the promotion of trade surpluses. In the context of international trade, a favorable trade balance is achieved 

through government regulations, such as tariffs and restrictions on imports. On the domestic side, mercantilist 

policies support domestic industries by establishing monopolies and allocating capital to encourage growth. Such 

policies are a form of economic protectionism meant to encourage self-sufficiency and are in direct opposition to 

the free-market economics of trade and globalization. 

2.3 Empirical Review 

Temidayo, Opeyemi & Grace (2022) carried out a study on Institutional Quality, Trade Protection Policy, and 

Macroeconomic Performance in Nigeria. Annual data on the exchange rate, corruption, unemployment, economic 

growth, trade protectionist policy, government capital expenditure, government expenditure on education, and 

government effectiveness covering the period from 1981 to 2019 were sourced from World Bank Development 

Indicators (WDI), Central Bank of Nigeria (CBN) Statistical Bulletin and International Country Risk Guide 

(ICRGs). Data collected were analyzed using the autoregressive distributed lag (ARDL) model and VAR Granger 

causality test. The results showed that due to the high level of corruption and low level of government 

effectiveness in the economy, institutional quality plays a negative role in the relationship between trade 

protectionist policy and macroeconomic performance in Nigeria. The study also found that trade protectionist 

policy causes and significantly explains changes in the exchange rate and economic growth in Nigeria while 

unemployment causes and explains changes in trade protectionist policy in Nigeria. This study concluded that the 

absence of institutional quality mitigates the effectiveness of trade protectionist policy on macroeconomic 

performance in Nigeria. 

Olufunke & Olufemi (2022) carried out a study on trade protectionism and the manufacturing sector: a review of 

border closure policy in Nigeria. This study empirically investigates to ascertain the impact of trade protection 

vis-à-vis border closure policy on the manufacturing sector in Nigeria between January 2018 and June 2021 using 

monthly secondary data. The study employs the traditional theory of protectionism as its theoretical framework. 

The Chow breakpoint result revealed that there is a significant change in the parameters of the model in July 2019 

which coincides with the time the policy implementation started. It employs a dummy variable to investigate the 

impact of the policy on manufacturing sector output as against the use of two regression models. The regression 

analysis revealed that in the short run, the impact of the border closure on the manufacturing sector was positive 

but later became adverse in the long run. Also, the interaction of the border closure with the inflation rate revealed 

that the inflation rate became high during the period but the government generated income from tariff increases. 

This revealed that there are leakages through the land borders that need to be curbed through legislation. Sequel 

to these findings, the study makes the following recommendations: government should not consider closing the 

borders again as closures constitute a drag to the manufacturing sector growth; rather than closing borders, the 

government should formulate policies to enforce trade protection; lastly, should it become exigent for the 

government to close the border, they should allow moderate inflation rate that the economy can tolerate in order 

to spur manufacturing output.          

Li and Whilley (2021) examined the relationship between Trade protectionism and manufacturing sector 

employment in the United States of America (USA) over the period of 1976–2008 employing the General 

equilibrium model. The study established that trade protectionism could increase the demand for USA domestic 

manufactured goods as a result of decreased foreign demand but the simulation results showed that USA trade 

protectionism reduced manufacturing sector employment.   

Ugwuja and Chukwukere (2021) examined the concept of trade protectionism and border closure in Nigeria from 

the political economy perspective by reviewing rice production from 1984 till date. This study established that 



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even though trade protectionism will boost the domestic economy which is in line with the international trade 

theory, not all stakeholders will benefit from it as there was evidence of food inflation within the period under 

review. 

Cheng et al. (2021) studied the impacts of trade protectionism on the Indian economy especially on the 

manufacturing sector from 1970 to 2017 using the ordinary least square (OLS) econometric technique. The study 

opined that there are two sides to the trade protectionism theory. In their analysis, it was stated that even though 

trade protectionism provides a less competitive market for domestic industries and provides a relatively stable 

environment for their growth; encourages exports, and also increases revenue to the government, the policy may 

not be sustainable as the high tariff rate will eventually harm the economy GDP. 

Abegunde and Fabiyi (2020) reviewed the implication of the recent Nigeria-Benin border closure on Nigeria’s 

economic development. He employed the OLS technique and affirmed that border closure which had the major 

aim of protecting the economy has only increased smuggling which is carried out by citizens of both countries. 

He also established that domestic production, income, and patronage increased with reduced national fuel 

consumption and increased seizure of contraband goods. He, therefore, concluded that the border closure was not 

to the economic development of Nigeria. 

3 Methodology  

Descriptive analysis was used. It entails the systematic collection and prescription of data to give a clear picture 

of a particular situation. It can be carried out on a small or large scale (Eboh, 1998).  

This study employs the Classical Linear Regression Model to investigate the effect of protectionist policies on 

economic development in Nigeria. The Classical linear regression model is useful when the relationship that exists 

between variables is linear.  

Functional Form of the Model 

RGDP = f(TO, EXR, IMT, INF) 

Mathematical Form of the Model 

GDP𝑡 =  β0 +  β1TO + β2EXR + β3IMT + β4INF 

Econometric Form of the Model 

GDP𝑡 =  β0 +  β1TO + β2EXR + β3IMT + β4INF + Ut 

Where GDP = Gross Domestic Product 

 TO = Trade Openness 

 EXR = Exchange Rate 

 IMT = Import Tariffs  

 INF = Inflation Rate 

 β0 = Intercept Parameter 

 β1 – β3= Coefficients of the variables 

 Ut = Error Term 

4. Data Analysis 

Preliminary Descriptive Statistics 

Test for Stationarity (Unit Root Test) 

The Augmented Dickey Fuller (ADF) was employed for this study, to determine if the variables in the model are 

stationary, that is to ascertain whether the mean, variance, covariance of each of the variables used in the model 

are constant over time, generated through a stochastic process. For the ADF test, a variable is stationary if the 

absolute ADF value is greater than any of the absolute Mckinnon critical values (at either 5%, 1% or 10%). 

H0: The time series variables have unit root. 

H1: The time series variables are stationary. 

Decision rule: Reject H0 of the absolute value of ADFis greater than any of the Mckinnon critical values in 

absolute terms. We fail to reject, if otherwise. 



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Table1: Result of ADF Unit Root Tests 

Variable Level 

Form 

5% Critical 

Value 

First 

Difference 

5% Critical 

Value 

Order of 

Integration 

LGDP -4.186 -2.954 __ __ I(0) 

IMT -2.299 -2.954 -5.953 -2.957 I(I) 

TO -3.402 -2.954 __ __ I(0) 

EXR 1.161 -2.954 -4.536 -2.957 I(1) 

INF -3.377 -2.957 __ __ I(I) 

Source: E-views 9 software 

The data for the variables gross domestic product and trade openness are all integrated at levels, while data for 

the variables import tariffs, inflation and exchange rate are integrated at I(I). This is also to say that these variables 

do not have a unit root or that they are stationary. Since these variables are stationary, we are going to carry out 

the co-integration test to determine if they have a long run relationship. 

Co-Integration Test 

Variables might not be stationary at levels but from their linear combination might be stationary at level form. 

Since all the variables are stationary, we adopt the co-integration test, to check for long-run relationships in the 

model. This study adopted the Johansen co-integration test methods. In this test, trace statistics were used to 

interpret the outcome. 

Test of Hypothesis: 

H0: There are no co-integrating equations. 

H1: Co-integrating equations exist. 

Decision Rule: Reject the null hypothesis if trace statistics > 5% critical value. Do not reject if otherwise. 

Table 2: Output from the Johansen Co-Integration Test 

Hypothesized No. of CE Trace Statistics 0.05% Critical Value 

None*  112.7775 69.8189 

At Most 1*  54.87491 47.8561 

At Most 2  23.86100 29.7971 

At Most 3  10.56256 15.4947 

At Most 4  0.006139 3.84146 

Source: E-views 9 software 

From the Table 4.3, it is evident there exist a long-run relationship since the trace statistics is greater than the 0.05 

critical value. The co-integrating rank is 2 (i.e., number of variables of study minus number of co-integrating 

vectors: 5 – 2 = 3). Thus, at 0.05 level of significance, we reject the null hypothesis and conclude that there is co-

integration amongst the variables in the model. This suggests long run relationship amongst the variables. 

Regression Results (OLS) 

After the application of the ordinary least square (OLS) estimation method on the model earlier suggested in the 

previous chapter, the following results shown in the table below was obtained. 

Table 3: OLS Estimation Result (Dependent Variable: LGDP) Newey-West HAC Applied 
Variable Coefficient Standard Error t-Stat p-Value 

IMT -0.0037 0.0189 -0.2001 0.8427 

EXR 0.0160 0.0031 5.0756 0.0000 

TO 0.0354 0.0241 1.4668 0.1532 

INF -0.0137 0.0135 -1.0183 0.3169 

C 27.299 1.5058 18.128 0.0000 

R2 = 0.83, Adjusted R2 = 0.81, F-Stat = 37.8969, Prob(F-stat) = 0.0000      DW = 0.357 



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Source: E-views 9 software 

Discussion of Results 

Import tariff has a coefficient of -0.003, and this shows that a unit increase in the import tariff will reduce the 

gross domestic product of Nigeria by 0.003 units, which is insignificant. The exchange rate has a coefficient of 

0.016. This means that a unit increase in the exchange rate will increase the gross domestic product in Nigeria by 

0.016 units. The value of the t-statistics and the p-value indicate that this effect is statistically significant. The fact 

that the inflation rate has a coefficient of –0.013, shows that a unit increase in the inflation rate is going to cause 

the gross domestic product to decrease by -0.013 units. However, the effect of the inflation rate on gross domestic 

product is insignificant as shown in the t-statistics, which is lesser than 2. Trade openness has a coefficient of 

0.035 which shows that a unit increase in trade openness is going to increase the gross domestic product of Nigeria 

by 0.035 units. This goes in line with the a priori expectation because an increase in the rate of export as a ratio 

of imports adds extra value to economic output.  

Diagnostic Tests 

1. Test for Multicollinearity: One of the assumptions of the OLS is the assumption of no multi-collinearity 

among the regressors in the model. In carrying out this test, a simple rule of thumb is used to search for a high 

pairwise or zero-order correlation between any two regressors. If the correlation coefficient is in excess of 0.8, 

then multi-collinearity is a serious problem (Gujarati and Sangeetta, 2007).  

Decision rule: If the correlation coefficient is in excess of 0.8, then there is multi-collinearity between two 

regressors. 

Table 4 Correlation Matrix 

 LGDP IMT EXR INF TO 

LGDP  1.000000 -0.603506  0.880708 -0.581218 -0.093181 

IMT -0.603506  1.000000 -0.544250  0.794118  0.002611 

EXR  0.880708 -0.544250  1.000000 -0.451688 -0.342143 

INF -0.581218  0.794118 -0.451688  1.000000 -0.216832 

TO -0.093181  0.002611 -0.342143 -0.216832  1.000000 

Source: E-views 9 software 

The correlation matrix above tells us that the independent variables used in this study are not strongly correlated 

with one another. This is because the correlation coefficients between the variables are all less than 0.8, as 

explained by Gujarati (2005).  

2. Test for Heteroskedasticity: The White General Test for Heteroskedasticity (gross terms) is employed in this 

study. That is, the squared residuals from the original regression are regressed on the original regressors, their 

squared values, and the cross product(s) of the regressors. 

H0: The variances are homoscedastic  vs H1: The variances are heteroskedastic 

Decision rule: If the p-value of the Chi-Square <0.05, we reject the null hypothesis. And we fail to reject if 

otherwise. 

Source: E-views 9 software 

Heteroskedasticity Test: White  

     
     F-statistic 1.424338     Prob. F(14,19) 0.2330 

Obs*R-squared 17.41069     Prob. Chi-Square(14) 0.2350 

Scaled explained SS 5.484663     Prob. Chi-Square(14) 0.9779 

     
     Source: Eviews 10.0 

Since the probability of chi-square is 0.2350 which is greater than 0.05, we do not reject the null hypothesis and 

conclude that there no is heteroskedasticity in the model. 



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3. Test for Autocorrelation: The purpose of this test is to verify whether the errors corresponding to 

different observations are uncorrelated. The Breusch-Godfreytest is adopted for this test. 

H0: There is no autocorrelation 

Decision rule: If the value of the p-value of Chi-Square <0.05, we reject the null hypothesis. We fail to reject if 

otherwise. 

Breusch-Godfrey Serial Correlation LM Test:  

     
     
F-statistic 35.54655     Prob. F(2,27) 0.0000 

Obs*R-squared 24.64154     Prob. Chi-Square(2) 0.0000 

     
     
Source: E-views 9 software 

Since the probability of chi-square is 0.0000 which is less than 0.05, we reject the null hypothesis and conclude 

that there is autocorrelation in the model. This presence of autocorrelation in the model means that the standard 

errors of the estimation may be bloated due to the serial correlation of the error term. In order to correct this, the 

Newey-West HAC Method was employed in the regression estimation process.  

Evaluation of Research Hypotheses 

The research hypothesis of this study is evaluated in this section. As a reminder, our stated hypothesis includes; 

H01: There is no existing long-run relationship between protectionist policies and economic development in 

Nigeria 

H02: There is no significant effect of trade openness on economic development in Nigeria 

H03: There is no significant effects of import tariffs and exchange rate on economic development in Nigeria 

Hypothesis one states that there is no existing long run relationship between protectionist policies and economic 

development in Nigeria. However, the Johansen cointegration tests conducted in the study highlighted the 

presence of two cointegrating equations, indicating that a long-run relationship exists between protectionist 

policies such as import tariffs, exchange rate and trade openness, and economic development in Nigeria.  

Hypotheses Two state that there is no significant effect of trade openness on economic development in Nigeria. 

The regression analysis reveals a P-Value of 0.1532 for trade openness, (the proxy for protectionist policies), 

which is greater than 0.05. This means that trade openness has a positive and insignificant effect on economic 

development in Nigeria.  

Hypothesis Three states that there are no significant effects of import tariffs and exchange rates on economic 

development in Nigeria. The regression analysis reveals a P-Value of 0.8427 for import tariffs, which is greater 

than 0.05, and a p-value of 0.0000 for the exchange rate, (the proxy for protectionist policies), which is lesser 

than 0.05. This means that the exchange rate has a positive and significant effect on economic development in 

Nigeria, while import tariffs have an insignificant negative effect on economic development.  

Conclusion 

The results of the ordinary least squares indicate that protectionist policies have a mixture of significant and 

insignificant effects on gross domestic product. The protectionist variables used in the study include import tariffs, 

exchange rates, and trade openness. 

Recommendations 

These recommendations bellowed are very important because they will create a net positive impact on the 

Nigerian economy. The government and all concerned parties are advised to heed these recommendations. 

Autarky, or government policies aimed at stifling the free flow of goods and services in and out of a country, have 

over time, been found to negatively hinder the economic activities of such nations. They are unable to make use 

of the various comparative and absolute advantages available due to such a situation. A nation prospers because 

it modifies its activities, by adapting to high-yielding economic practices, which is hardly possible in a 

protectionist regime.  



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The study recommends the following; 

i. There should be a deliberate effort on the part of the government to make policies that will favour the 

exportation of products. This is because doing such means a high trade openness, and will have a positive effect 

on the economic development of the country, with the market for local goods being expanded, and the pool of 

natural resources and human resources widened.  

ii. Also, import tariffs are used by the government to control imports into the country, and also as a source 

of revenue. Given that the study found import tariffs to have a negative effect on economic development, the 

study recommends that government reduces its import tariffs so as to help boost the overall economic output 

within the country.  

iii. Furthermore, the study found exchange rates to positive impact on economic development. Therefore, the 

study recommends a strong exchange rate regime that will help local companies to compete with their global 

counterparts. Also, the exchange rate will help the country in building its foreign reserves. And inflation rate has 

a negative effect on economic growth, and rightly so, as inflation increases the cost of production of business 

organizations. The government is advised to apply all necessary measures to check the rate of inflation increase 

in the country. 

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