Balance of payments and economic growth in Nigeria: The applicability of Thirlwall’s Law
Joseph Denwi ORCID ↗ · Nenubari Ikue ORCID ↗
Bussecon Review of Social Sciences · 2024 · Vol. 6 / Issue 3 · 22-31
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Abstract
This study investigates the validity of Thirlwall’s Law in Nigeria, examining whether balance-of-payments constraints affects economic growth in Nigeria. Utilizing annual data from 1980 to 2020, the analysis employs an autoregressive distributed lag (ARDL) model to estimate the income elasticity of imports and tests for cointegration to verify long-term equilibrium relationships. Findings reveal that Nigeria’s income elasticity of import demand exceeds unity, suggesting that income growth significantly heightens import dependency, which exacerbates balance-of-payments pressures. The results confirm Thirlwall’s hypothesis, indicating that Nigeria’s growth is constrained by its current account position. This study contributes to the literature by applying Thirlwall’s Law to a resource-dependent developing economy with high import reliance and limited export diversification. Key policy recommendations include the adoption of an import-substitution strategy to bolster domestic production in high-demand sectors, alongside export diversification efforts to reduce external dependency. These findings underscore the urgent need for structural reforms to stabilize the balance of payments and promote sustainable economic growth in Nigeria.
Keywords: {'name': 'Thirlwall’s Law, Balance of Payments, Economic Growth, Income elasticity of imports, ARDL'}
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Joseph Denwi
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Nenubari Ikue
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