Global Economic Uncertainty and its Impact on Nigeria's Trade and Investment Outcomes

Abstract

This study investigated the impact of global economic uncertainty on Nigeria’s trade and investment outcomes, addressing a critical gap in the literature regarding African economies. The study employed yearly time series data from1980 to 2022, the analysis employs the autoregressive distributed lag (ARDL) model estimation technique  and Bounds test of cointegration and were used to estimate both short-run and long-run relationships between global economic uncertainty (proxied by the World Uncertainty Index) and Nigeria’s trade (balance of payments) and investment outcomes (FDI as a percentage of GDP), controlling for economic growth, trade openness, exchange rates, foreign reserves, interest rates, and inflation. The study found that global economic uncertainty exerts a negative and statistically significant impact on both trade and investment outcomes in Nigeria in the short run. Specifically, a one percent increase in global economic uncertainty leads to a 68.2% decrease in trade outcomes and a 1.6% decrease in investment outcomes in the short run, holding other factors constant. However, the long-run impacts, while negative, are not statistically significant at the 5% level. These results suggest that Nigeria’s trade and investment sectors are highly sensitive to global shocks, particularly in the immediate aftermath of uncertainty events. These findings highlight the vulnerability of Nigeria’s trade and investment performance to global economic uncertainty, especially in the short term. To mitigate these negative impacts, the study recommends targeted trade promotion strategies, simplification of trade procedures, and the development of a robust risk management framework. Additionally, fiscal measures such as targeted tax incentives and investment allowances, alongside monetary interventions including interest rate management and liquidity support, are essential to bolster resilience and sustain economic growth during periods of heightened uncertainty.

Keywords: Global economic uncertainty, trade outcomes, investment outcomes, Nigeria, ARDL