International Competitiveness and Growth of the Nigerian Economy: A Structural VAR-Based Perspective

Abstract

The empirical relationship between international competitiveness of the Nigerian economy
and its consequences on economic growth dynamics was investigated in this study. Using
export performance and real effective exchange rate as proxies for international
competitiveness of the Nigerian economy, the relationship between international
competitiveness of the Nigerian economy and its growth dynamics have been analytically
explored in this study using the structural VAR framework. The study found that growth of
real output contemporaneously responds positively to a positive shock to real effective
exchange rate but responded contrary to theoretical expectation in the opposite direction to a
positive shock to export performance. The structural/orthogonalized impulse response
analysis and the forecast error variance decomposition results were largely consistent with
theoretical expectations as well as the short-run SVAR results. These results suggest that
there are no serious misalignment issues with the Nigerian currency but cast doubt on the
ability of the current export structure of the Nigerian economy to be growth inducing.