Do Trading Partners Still Matter for Nigeria's Growth? A Contribution to the Debateon Decoupling and Spillovers
IMF Working Papers, October 1, 2009
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Bibliographic details
- Authors: Kingsley I. Obiora
- Published: October 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451873658.001
Summary
- Research question: Should policymakers still be concerned about economic growth in trading partners? Have developing and emerging market countries decoupled from the US enough to grow despite significant recession in the US?
- Method: Uses VAR models to assess spillovers to Nigeria in the context of the global crisis.
- Principal conclusion: The results seem to debunk the "decoupling theory" and suggest there are still significant spillovers from Nigeria's main trading partners, including the US.
- Dominant transmission channels identified: trade and commodity price linkages.
- Contextual interpretation: Given the sharp fall in both trade financing and commodity prices in aftermath of the crisis, these results provide some explanation to the realization of adverse second-round effects in Nigeria.
- Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.
Key findings and evidence
- Empirical finding: Evidence does not support a full "decoupling" of Nigeria from its trading partners, including the US.
- Spillover channels:
- Trade linkages.
- Commodity price linkages (notably oil prices).
- Economic consequences highlighted:
- Sharp fall in trade financing after the crisis.
- Sharp fall in commodity prices after the crisis.
- These factors help explain adverse second-round effects on Nigeria’s economy.
Policy implications and recommendations
- Policymakers should remain attentive to growth dynamics in trading partners because spillovers remain significant.
- Monitor and manage exposures via:
- Trade-related channels.
- Commodity price vulnerability, particularly oil price developments.
- Consider policy measures that mitigate second-round effects from external shocks transmitted through trade financing and commodity prices.
Methodology and scope
- Analytical framework: Vector autoregression (VAR) models.
- Case study focus: Nigeria in the context of the global crisis.
- Subject areas: Econometric analysis, Emerging and frontier financial markets, Exchange rates, Financial markets, Financial sector policy and analysis, Foreign exchange, Oil prices, Prices, Spillovers, Vector autoregression.