• O. S. AIGHEYISI Department of Economics, University of Benin, Benin City, Nigeria
  • A. H. ISIKHUEMEN Department of Economics and Development Studies, Igbinedion University, Okada, Edo State, Nigeria
Keywords: Trade Openness, Financial Openness, Output Growth Volatility


This study investigates the effect of trade openness and financial openness on output growth volatility in Nigeria using annual time series data that span the period from 1970 to 2015. Output growth volatility is generated using an EGARCH (1,1) process, and this was regressed on indices or measures of trade openness, financial openness (using the Chinn-Ito index), oil price, financial development and exchange rate. The autoregressive distributed lag (ARDL) approach to cointegration and error correction modeling was employed for the analysis. The empirical evidence indicates that trade openness and financial openness exacerbate output growth volatility in Nigeria in the long run. Favourable crude oil price is found to play significant role in stabilizing output growth in the long run. However, the short run effect of trade openness on growth volatility is negative, implying that in the short run trade openness plays some role in reducing output growth volatility. The short run effect of financial openness on output growth volatility is also negative, but not statistically significant. Further evidence from the study is that financial development and currency depreciation also reduce growth volatility in the short run. Based on the empirical evidence, the paper recommends, as measures to reduce output growth volatility (or stabilize output growth) in Nigeria, cautious liberalization of the nation’s economy, efforts by the government to develop the nation’s financial system to expand its credit extension/provision capacity, and prevention (by the monetary authority) using appropriate policy actions, of undue appreciation of the domestic currency (the naira).




Abubakar, R. 2015. The asymmetric impact of trade openness on output volatility. Empirical Economics, 49(3), 881-887.

Ahmed, A. D., Suardi, S. 2009. Macroeconomic Volatility, Trade and Financial Liberalization in Africa. World Development, 37(10), October, 1623-1636.

Ali, S. S. 2016. Growth Volatility and Export Diversity in OIC Countries. Islamic Research and Training Institute (IRTI) Research Seminar, January 19.

Bakaert, G., Harvey, C. R., Lundblad, C. 2006. Growth Volatility and Financial
Liberalization. Journal of International Money and Finance 25, 370-403.

Balavac, M., Pugh, G. 2016. The Link between Trade Openness, Export Diversification, Institutions and Output Volatility in Transition Countries. Economic Systems, 40(2), 273-287.

Baldwin, R. E., Forslid, R. 2000. Trade Liberalisation and Endogenous Growth: A Q-theory Approach. Journal of International Economics, 50(2), 497-517.

Bejan, M. 2006. Trade Openness and Output Volatility. MPRA Paper No. 2759.

Briguglio, L., Vella, M. 2016. Trade Openness and Volatility. Paper presented at the 54th Annual Conference of the Philippine Economic Society held in Manila on 8th November 2016.

Buch, C. M., Döpke, J., Strotmann, H. (2006). Does Trade Openness Increase Firm-Level

Volatility? Deutsche Bundesbank Discussion Paper Series 1: Economic Studies No 40/2006.

Busch, C. J. 2011. Does Export Concentration Cause Volatility? KOF Working Paper No. 11-292.

Calderón, C., Schmidt-Hebbel, K. 2008. Openness and Growth Volatility. Central Bank of Chile Working Papers N° 483 September 2008.

CBN 2016. Statistical Bulletin, Abuja: Central Bank of Nigeria.

Čede, U., Chiriacescu, B., Harasztosi, P., Lalinsky, T., Meriküll, J. 2016. Export
Characteristics and Output Volatility: Comparative Firm-Level Evidence for CEE Countries. Národná banka Slovenska Working Paper No. 3/2016, May.

Cermeno, R., Garcia, M. R. and Gonzalez-Vega, C. 2012. Financial Development and Growth Volatility; Time Series Evidence for Mexico and The United States. CIDE Working Paper, No. 544.

CGD 2018. Causes and Consequences of High Volatility in Developing Countries. Retrieved
from on May 19, 2018.

Chakraborty, D., Boasson, V 2012. Capital Flows, Degree of Openness and Macroeconomic Volatility. Indian Journal of Economics & Business, 12(1), 1-12.
Chen, S. and Wang, C. 2009. Financial Openness and Macroeconomic Volatility: An
Empirical Investigation. Retrieved from on May 15, 2018.

Chinn, M. D., Ito, H. 2006. What Matters for Financial Development? Capital Controls, Institutions, and Interactions. Journal of Development Economics 81, 163 – 192.

Crockett, S. (2011). ‘Has Globalization Spread Democracy around the World?’ Retrieved from on September 21, 2018.

Dabušinskas, A., Kulikov, D., Randveer, M. 2012. The Impact of Volatility on Economic Growth. Eesti Pank Working Paper Series, No. 7/2012.

Dulupçu, M. A., Isparta, O. D. (2005). Globalization and Internationalization, Brussels:
European Commission.

Fan, P., Mohtadi, H., Neumann, R. (2014). Financial Integration, Macroeconomic Volatility, and the Directions of Capital Flows. Retrieved from from May 14, 2018.

Fatás, A. 2001. The Effects of Business Cycles on Growth. Paper presented at the 5th annual
conference of the Central Bank of Chile, November 29-30, 2001

Giovanni, J., Levchenko, A. A. 2008. Trade Openness and Volatility. IMF Working Paper, No. WP/08/146.

Haddad, M., Lim, J. J., Pancaro, C., Saborowski, C, 2013. Trade Openness Reduces Growth Volatility When Countries Are Well Diversified. Canadian Journal of Economics, 46(2), 765-790.

Hakura, D. 2009. Output in Emerging Market and Developing Countries: What Explains the “Great Moderation” of 1970−2003? Czech Journal of Economics and Finance, 59(3), 229-254.

Hnatkovska, V., d Loayza, N. 2003. Volatility and Growth, Washington D. C: The World Bank

Karras, G. 2006. Trade Openness, Economic Size, and Macroeconomic Volatility: Theory and Empirical Evidence. Journal of Economic Integration 21(2), June, 254-272.

Kartalciklar, B. 2015. Export Diversification and Output Volatility - Empirical Evidence from Central and Eastern European Countries. Job Market Paper: November 2015. Retrieved from on May 10, 2018.

Keho, Y., Wang, M. G. 2017. The Impact of Trade Openness on Economic Growth: The Case of Cote d’Ivoire. Cogent Economics & Finance, 5(1), 1-14

Kose, A. H., Prasad, E. S., Terrones, M. E. 2004. How Do Trade and Financial Integration Affect the Relationship between Growth and Volatility? Washington D. C: IMF.

Kose, M. A., Prasad, E. S., Terrones, M E. 2004. “Volatility and Comovement in a Globalized World Economy: An Exploration”, in Horst Siebert ed., Macroeconomic Policies in the World Economy, Verlag: Springer.

Loayza, N. V., Rancière, R., Servén, L., Ventura, J. 2017. Macroeconomic Volatility and Welfare in Developing Countries: An Introduction. The World Bank Economic Review 21(3), 343-357.

Longmore, R., W. Robinson. 2004. Modelling and Forecasting Exchange Rate Dynamics: An Application of Asymmetric Volatility Models. Bank of Jamaica, Working Paper WP2004/03.

Martin, P., Rogers, C.A. 2000. Long-term Growth and Short-term Economic Instability”, European Economic Review, 44, 359-381.
Martin, W. 2001. Trade Policies, Developing Countries, and Globalization, Washington DC:
World Bank.

Mekonnen, J. L., Dogruel, A. S. 2017. Growth Volatility and Openness in Sub-Saharan Africa. Marmara Journal of Economics, 1(2), 209-228.

Meller, B. 2011. The Two-sided Effect of Financial Globalization on Output Volatility. Deutsche Bundesbank Eurosystem Discussion Paper, Series 2: Banking and Financial Studies No 07/2011.

Mirdala, R., Svrčeková, A., Semančíková, J. 2015. On the Relationship between Financial Integration, Financial Liberalization and Macroeconomic Volatility. Journal of Applied Economic Sciences, 10(2), 552-570.

Mireku, K., Agyei, E. A., Domeher, D. 2017. Trade Openness and Economic Growth

Volatility: An Empirical Investigation. Cogent Economics and Finance, 5(1), 10-21.

Mubangizi, J. C. 2009, March. Democracy and Development in the Age of Globalization: Tensions and Contradictions in the Context of Specific African Challenges. Paper presented at the Asian Association of Global Studies (AAGS) Conference on Globalization Human Rights in the Developing World, University of Calgary Canada

Mujahid, H., Alam, S. 2013. The impact of financial openness, trade openness on macroeconomic volatility in Pakistan: ARDL Co Integration approach. E3 Journal of Business Management and Economics, 5(1). January, 1-8.

Mussa, M. 2000. Factors Driving Global Economic Integration, Washing DC: IMF.

Onyimadu, C. 2016. Macroeconomic Volatility and Economic Growth: Evidence from
Selected African Countries. MPRA Paper No. 77200

OPEC 2016. OPEC Basket Price, Vienna: Organisation of Petroleum Exporting Countries.

Orga, J. I 2012. Globalisation: The Nigerian Experience. Review of Public Administration & Management, 1(2), 154-179.

Ramey, G., Ramey, V. A. 1995. Cross-Country Evidence on the Link Between Volatility and Growth. The American Economic Review, 85(5), 1138–1151.

Tverberg, G. 2013. 12 Negative Aspects of Globalization, NewYork:

U.S. Department of Commerce 2016. Nigeria - Executive Summary, Washington: U.S. Department of Commerce.

van Bezooijen, E. F. S., Bikker, J. A. 2017. Financial Structure and Macroeconomic Volatility: a Panel Data Analysis. Utrecht University School of Economics Tjalling C. Koopmans Research Institute Discussion Paper Series 17-13.

World Bank 2016. World Development Indicators, Washington D. C: World Bank.

Zahonogo, P. 2016. Trade and economic growth in developing countries: Evidence from sub-Saharan Africa. Journal of African Trade, 3(1-2), 41-56.