Does cultural economics affect country’s competitiveness?

Abstract

Nigeria's manufacturing sector has exhibited chronic underperformance across successive policy regimes, raising fundamental questions about the efficacy of macroeconomic instruments in fostering industrial development. This study investigates the individual and joint effects of trade liberalization and monetary policy on manufacturing output in Nigeria over the period 1990–2024. Employing the Autoregressive Distributed Lag (ARDL) bounds testing framework of Pesaran, Shin, and Smith (2001), the study incorporates an interaction term (TOP × MPR) to capture policy complementarity. Trade liberalization is proxied by the trade openness index (exports plus imports as a share of GDP), while monetary policy is measured by the Monetary Policy Rate (MPR). Pre-estimation testing of variables for unit root returned a mixed order of integration I(0) and I(1), validating the ARDL approach. The bounds F-statistic of 6.84 exceeds the upper critical bound at the 1% significance level, confirming long-run cointegration. Long-run estimates reveal that trade openness exerts a positive and statistically significant effect on manufacturing output (β = 0.42, p < 0.05), whereas the Monetary Policy Rate exerts a significant negative effect (β = −0.31, p < 0.01), reflecting the contractionary impact of high borrowing costs on industrial activity. The interaction term (TOP × MPR) is positive and significant (β = 0.18, p < 0.05), providing evidence of policy complementarity: trade liberalization becomes more productive as the monetary stance is accommodative. The error correction term (ECT = −0.47, p < 0.01) confirms a moderate speed of adjustment toward long-run equilibrium. Robustness is further assessed using the Nonlinear ARDL (NARDL) framework, which reveals significant asymmetric effects of both trade openness and monetary policy on manufacturing output, with negative shocks exerting stronger and more persistent effects than positive shocks. Diagnostic tests confirm model adequacy with no evidence of serial correlation, heteroskedasticity, or misspecification. CUSUM and CUSUMSQ stability tests confirm parameter stability over the study period. The findings underscore the critical importance of policy coordination: policymakers must align trade liberalization strategies with accommodative monetary conditions to unlock sustainable industrial growth in Nigeria.

Keyword : Trade Liberalization; Monetary Policy; Manufacturing Output; Policy Complementarity; ARDL; NARDL; Nigeria