Effect of Monetary Policy on Trade Openness in Nigeria

Abstract

This study investigated the effect of monetary policy on trade openness in Nigeria. Annual time series data were used between 1987 and 2020. Haven used broad money growth, lending rate, and exchange rates to proxy monetary policy in Nigeria, VAR/ECMl, and Granger Causality techniques were employed for the analysis.The study found that monetary policy hasa significant effect on trade openness in both the short-run and long-run periods. Specifically, broad money growth has a significant direct/ positive effect on trade openness while lending rate has a significant inverse influence on trade openness. However, the exchange rate does not have any significant swayon trade openness in Nigeria. The study, as such, suggests that monetary policy be used to boost the economy’s trade openness by increasing the broad money growth and reducing the lending rate which could improve quality investments for export.