International Trade and Domestic Price Stability in Nigeria

Abstract

This study examined the impact of international trade on domestic price stability in Nigeria from 1990 to 2023. The objective was to evaluate how exports, imports, and exchange rate fluctuations influence inflation in the country. Annual time series data were sourced from the Central Bank of Nigeria Statistical Bulletin and World Development Indicators. The Autoregressive Distributed Lag (ARDL) model was employed due to its suitability for analyzing both short-run and long-run relationships among variables with mixed levels of stationarity. The results revealed that exports exert a negative and significant effect on inflation, indicating that increased export activities contribute to domestic price stability. Conversely, imports have a positive and significant impact on inflation in the long run, suggesting that Nigeria’s heavy dependence on imported goods drives inflationary pressures. Exchange rate fluctuations were found to significantly affect inflation in the short run, implying that naira volatility transmits to domestic prices. The error correction term was negative and significant, confirming a rapid adjustment to long-run equilibrium after short-term shocks. The study concludes that international trade dynamics play a vital role in Nigeria’s inflation behaviour and recommends policies that promote export diversification, reduce import dependence, and stabilize the exchange rate to sustain domestic price stability.