A comparative analysis of trade effects on South African and Nigerian economies

Abstract

The study provided a comparative analysis of trade effects on economic growth between South Africa and Nigeria. The autoregressive distributed lag (ARDL) methodology was employed in the comparative analysis. Results of the ARDL bounds test showed that for both South Africa and Nigeria there is a long run relationship between economic growth, trade liberalization, foreign direct investment (FDI) and trade openness. However, in the end Nigeria's trade liberalisation had a negative effect on economic growth while South Africa had a positive effect. For FDI, Nigeria was found to have a negative and significant effect on economic growth which is contradictory to South Africa which had a positive and insignificant effect. Trade openness showed comparative results for both countries as both showed positive and significant results. It turned out that the speed of adjustment to equilibrium was higher for Nigeria (86%) than South Africa (18%) so, Nigerian economy converged to equilibrium faster than South Africa. It had been realised that Nigerian FDI could have contributed to its trade liberalization hence it could influence economic growth and export more goods. It is recommended that a country like South Africa should learn from a country like Nigeria as they both have natural resources that can be traded to improve their economies. South African policymakers should focus on policies that could promote FDI.