knowledge (WTO 2005). Most studies in Nigeria have focused on output and employment; following Pesaran and Shin (2001), this paper used identified Vector Error Correction Model (VECM) and Granger Non-Causality test proposed by Toda and Yamamoto (1995) to examine the relationship between trade and openness in Nigeria.
The rest of this paper is organised as follows: Section II discusses literature review. Section III presents methodology of the study, which includes the theoretical framework of the study and model specification. Section IV presents the result of the analysis while Section V concludes and recommends.
Conclusion
This study investigated the relationship between trade openness and employment in Nigeria, this was motivated by the fact that the unemployment rate in Nigeria has been on increasing trend despite various attempts by Nigerian government to curb the situation. The paper uses both Augmented Dickey-Fuller and Phillips-Perron to test for the presence of unit root. The unit root test reveals that the variables are nonstationary and were made stationary after the first difference. Johansen’s co-integration was used to test for cointegrating vectors; the trace and maximum eigenvalue indicate three co-integrating equations at five percent level. The result suggests that the set of cointegrated time series have an error-correction representation, which reflects the long run adjustment mechanism. Based on the result, the VECM was estimated following Pesaran and Shin (2001) to impose restrictions for identification. The result of the VECM reveals that there is no joint long run causality with the dependent (employment) and other variables (economic growth, interest rate, exchange rate and consumer price index). However, there is an existence of joint short run causality. The structural long run identified equations show that interest rate elasticity is negative and significant; the coefficient of trade openness is negative and significant, also the elasticity of the exchange rate is positive and significant. The economic implication of this result is that in the long run as the interest rate increases, the economic growth rate decreases, and openness has not improved the economic performance in Nigeria. The result of the causality test following Toda and Yamamoto (1995) approach to causality showed that there is unidirectional relationship from trade openness to employment. The variance decomposition shows that the contribution of trade openness to employment is minimal from the short-run to long-run.
The models are subjected to diagnostic tests; for a model to be correctly specified, it must satisfy the following conditions: residual of the model must be normally distributed; model should capture the autoregressive conditional heteroskedasticity (ARCH) effect; model must not have any serial correlation and finally; must satisfy the stability condition. The model for this study satisfies all the stated condition. The overall conclusion that can be drawn from the results is that trade Openness has negative impact on employment in Nigeria. The result has clearly shown that the growth rate experienced within the periods of 1981 to 2014 has been jobless. It is also shown that exchange rate; interest rate and consumer price index are variables to be considered in stimulating growth in the employment in the short run. Based on the findings, the study suggested restrictive measures to maximise the benefit of trade openness in the long run; this is in congruence with the tenet of the new trade theory in order to increase the degree of competiveness.
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