Shock Transmission between Export Expansion and Technological Change in Developing Economies: Evidence from Nigeria

Nigeria export earnings especially from oil, makes up over 25% of its GDP and over 90% of its annual budget. This makes the economy an attractive case study in the field of trade. This study investigated the short-run shock transmission and long-run multiplier analyses between export expansion/growth and technological changes captured by the growth in total factor productivity (TFP) estimated for the aggregate economy. For the long-run analysis the study employed the Autoregressive Distributed Lag (ARDL), the Peseran et al. (2001) Bound Testing method of Cointegration analysis while Variance decomposition and Impulse Response function were used for the shock transmission analysis. Data of sectored export trade (oil, nonoil and manufacturing) and estimated TFP between 1973 and 2012 were used for both analyses. The results provided evidence to support the bi-directional causality between export expansion and technological growth discovered by previous studies. But the magnitude of impact runs from technological growth to export expansion. Also the variance decomposition revealed that a greater percentage of variations in export expansion in Nigeria can be traced to shocks in nonoil and manufactured exports. The poor structure of these two sectors’ export trade had hindered the expansion of export in Nigeria leaving oil export (a wasted asset) to dominate. The ARDL analysis confirmed the weak immediate and long-run multiplier effect of technology growth on export expansion. It is therefore pertinent for the Nigeria government to put in place technological development strategies that will promote the nonoil sector of the economy if the economy is to enjoy and sustain the benefits of trade openness.