Himalayan Economics and

Business Management
Open Access
Research Article
Impact of International Trade on Poverty Reduction in Nigeria: An
Approach of Time Series Econometric Model
Umeh Anthony Chinedu1, Dr. Nwali Sebastian Ogbonna2 and Obi Amara Nkechi3
1
Department of Economics; Enugu State University of Science and Technology
2
Department of Entrepreneurial Studies Enugu State University of Science and Technology Business School
3
Dept. of Social Science; School of General Studies Federal Polytechnic Oko Anambra State Nigeria
Abstract: The study examined the impact of international trade on poverty reduction in
*Corresponding Author Nigeria. The specific objectives are to: determine the impact of total import value on the
Umeh Anthony Chinedu poverty reduction in Nigeria; ascertain the impact of total export value on the poverty
Article History reduction in Nigeria and evaluate the impact of foreign direct investment on the poverty
Received: 08.02.2022 reduction in Nigeria. This study made use of ex post-facto research design, which enables us
Accepted: 18.02.2022 to measure the impact or relation between dependent variable and explanatory variables
Published: 28.02.2022 using time-series secondary data. These variables consist of poverty rate (POVERTY), Total
Export value (TEV), Total Import value (TIV), Foreign Direct Investment (FDI), trade
Citations: openness (TRAOPEN), and Trade Tariff (TRADE) for a period of 1980 to 2019. Poverty
Umeh Anthony Chinedu, Dr. Nwali rate (POVERTY) was sourced from World Bank Data Indicators. Total Export value (TEV),
Sebastian Ogbonna and Obi Amara Total Import value (TIV), Foreign Direct Investment (FDI) and Trade Tariff (TRADE) were
Nkechi. (2022 Impact of International
Trade on Poverty Reduction in Nigeria: sourced from Central Bank of Nigeria’s (CBN) Statistical Bulletin 2019. The method of
An Approach of Time Series data analysis was Error Correction Model while Augmented Dickey-Fuller Unit Root test
Econometric Model. Hmlyan Jr Eco statistic, Johansen co-integration test, Heteroscedasticity White Test, Ramsey Reset, Jarque
Bus Mgn; 3(1) 165-177. Bera, Breuch-Godfrey Serial Correlation LM Test were test used in the study. The results of
the study reveal that: total export value (TEV) has positive significant impact on poverty
reduction since (t – statistics (6.0593) > critical value (1.684); total import value (TIV) has
DOI: 10.47310/Hjebm.2022.v03i01.023
negative significant impact on poverty reduction since (t – statistics (-3.3968) > critical
value (1.684); total import value has 79 percent positive significant impact on poverty
reduction in Nigeria and foreign direct investment (FDI) has positive insignificant impact on
poverty reduction since (t – statistics (0.2781) < critical value (1.684). The study
recommends that the Nigeria government should sustain export diversification. Non-oil
exports, especially agricultural sector, should be encouraged and concentration on oil sector
export should be minimized.

Keywords: International Trade, Poverty Reduction

I
1. NTRODUCTION
1.1 BACKGROUND OF THE STUDY
The first of the Millennium Development Goals (MDGs) is to eradicate poverty and hunger. This shows the severity
of the challenge worldwide and its importance for development. Economists have long been concerned with the factors
which cause diverse countries to grow at different rates and accomplish various levels of wealth. One of such factors is
trade. However, while international trade between nations may engender growth generally, there are no guarantees that
its cumulative benefits are distributed evenly among trading partners (Obadan & Okojie, 2012). This has been the
experience of Nigeria since the independence even though the composition of trade has changed over the years. Thus,
international trade is the existence of absolute independence of countries in terms of goods and services produced and
consumed (Gbanador, 2005).

International trade, through the medium of import and export of goods and services, has become an increasingly
important and prominent economic activity amongst countries particularly in this volatile economy. The exchange of
goods and services across borders is an avenue through which countries may be able to achieve and promote economic
self-sustainability as well as a platform for transforming a country’s natural resources such as crude oil, gold, diamond
and so on into economic wealth. The wealth acquired in this regard is used by the government to provide basic
infrastructural facilities, which off-course enhances the living standards of the populace and consequently leading to
economic growth and development (Owolabi-Merus, Inuk & Odediran, 2015).

Another positive spillover effect that international trade has on the economy of developing countries especially in
Africa is that it presents opportunities for local industries to internationally broaden their market reach. This results to the
potential increase of market size and increased profit turnover which in turn results to the encouragement and growth of
the local industries and creation of employment opportunities for the teaming populace (Owolabi-Merus, Inuk &
Odediran, 2015).

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In Nigeria, international trade could be found to be The Nigerian case in the benefits of international
paramount to the growth of the economy because it trade is a different thing altogether. One of the serious
generates a significant amount of revenue particularly issues that has obstructed the accomplishment of
from the agricultural and oil sectors. Prior to the poverty reduction in Nigeria have been credited to
discovery of crude oil, a significant portion of Nigeria’s external aggregates such as; low FDI inflow, exchange
revenue emanated from the exportation of agricultural rate instability and negative net export (Obayori, 2016).
products such as palm oil, groundnut, rubber and cocoa. For instance, fluctuations in Nigeria’s currency (Naira)
However, the discovery of crude oil resulted to the exchange rate, which is a good determinant of external
neglect of the agricultural sector as Nigeria’s major trade, caused economic instability in the country and
export sector. From the import perspective, due to corrupt practices in government offices.
Nigeria’s status quo of being underdeveloped, it highly
depends on technologically advanced countries such as Nigeria is rich but its people are poor (World Bank,
Germany, the United States and the United Kingdom 1996). This irony has made it imperative to assess the
for the importation of products which it lacks the poverty implications of the government’s activities. A
capacity and technical know-how to produce for greater urgency should be brought into this issue as the
instance, automobiles, equipment and machinery. The population of poor people is almost steadily growing:
importation of these commodities helps to stimulate between 1980 and 1996 the population of poor people
technical efficiencies and meet the productive needs of (living below the poverty line) doubled from 33% [18
the local industries as well as that of the large million] to 66% [66 million] of the population (DFID,
population (Ezindu, Onwuka, Okoli & Udeze, 2020). 2000). Recent United Nations and Federal Government
estimates for the year 2000 that poverty level will
The importance of international trade to economic change but unfortunate trend of rapidly growing
improvement cannot be over emphasized. This is population of poor people is further exacerbated by
because both the classical and neoclassical financial double i.e. the poor are becoming poorer than they used
analysts are of the opinion that international trade to be. Poverty is caused by microeconomic and
serves as the life wire of any developed nation. Over the macroeconomic as well as sociocultural factors in
past three centuries, the world economy has become Nigeria.
greatly connected through globalization. International
trade plays a central role in the development of a Nigeria is an oil-endowed state and an example of a
modern global economy. The impact of international petro-dependent economy. Oil wealth and petroleum
trade on a country’s economy is reflected in the resources account for about 75% of Nigeria’s foreign
structural change in the economy. International Trade exchange earnings. The petroleum sector is thus,
could enhance the efficient production of goods and justifiably, the mainstay of the economy. Between 2010
services through allocation of resources to countries and 2019, total of 2,787 crude oil pipelines
that have comparative advantage in their production vandalisation were reported on pipelines belonging to
(Frankel & Romer, 1999). the Nigerian National Petroleum Corporation (NNPC)
resulting in a loss of 157.81mt of petroleum products,
International trade has become an inevitable activity worth about ₦12.53billion revenue from export crude
in today’s world. A country such as Nigeria generates a oil sales in international trade. According to the
substantial portion of its revenue through the Nigerian Bureau of Statistics (2004) reports that
exportation of oil and agricultural produce. Likewise, incidence of poverty in the Niger Delta increased from
through importation, the country is able to satisfy the 15.4% in 1980 to 52.2% in 2014 and is connected to the
domestic needs for mechanized and technological constant incidence of oil spillage which has destroyed
products which it lacks the capacity and technical sources of income and productive activities in the
know-how to produce. It is based on this premise that region. Furthermore, Akpokodje and Sheu, (2015);
this study conducts an investigation into the impact of Nnabuenyi (2012) observed the negative effects of oil
international trade on poverty reduction in Nigeria. spillage on agriculture and lamented that most of the
destroyed farmlands and polluted river have contributed
1.2 Statement of the Problem to the frustration and lack of livelihoods for farmers and
Trade has been recognized as an engine for fishermen in Niger Delta region thereby reduced the
inclusive economic growth and poverty reduction in the level of farm produce for export in international trade.
2030 Agenda for Sustainable Development. The 2015 Therefore, it is in the light of these backdrops that this
joint WTO-World Bank publication, The Role of Trade study examines the impact of international trade on
in Ending Poverty strengthened the evidence that trade poverty reduction in Nigeria.
has played a critical role in poverty reduction and that
the further integration of developing countries into an 1.3 Objectives of the Study
open global economy will be essential for achieving the The aim of the study is to examine the impact of
goal of ending extreme poverty by 2030. international trade on poverty reduction in Nigeria. The
specific objectives are to:

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in decision making that affects their lives. Related to the
i. determine the impact of total import value on definition of poverty is the measurement of poverty.
the poverty reduction in Nigeria.
ii. ascertain the impact of total export value on
the poverty reduction in Nigeria. T
2.2 HEORETICAL ITERATURE L
iii. evaluate the impact of foreign direct 2.2.3 Heckscher-Ohlin International Trade Theory
investment on the poverty reduction in The Heckscher-Ohlin international trade theory
Nigeria. was developed by the Swedish economist Bertil
Ohlin (1899–1979) on the basis of work by his teacher
2.1 Conceptual Literature the Swedish economist Eli Filip Heckscher (1879–
2.1.1 International Trade 1952). For his work on the theory, Ohlin was awarded
International trade is also known as foreign trade. It the Nobel Prize for Economics (the Sveriges Riksbank
is different from inter-regional trade or internal-local or Prize in Economic Sciences in Memory of Alfred
domestic or internal trade. The inter-regional trade or Nobel) in 1977. Heckscher-Ohlin international trade
internal-local or domestic or internal trade refers to theory, in economics, developed the General
trade between regions within a country. But Equilibrium or factor Endowment or factor proportions
international trade, on the other hand, is a trade between theory of international or theory of comparative
two nations or countries (Jhingan, 2006). It may be advantage in international trade the H.O. theory states
defined as the exchange of goods and services between that the main determinant of the pattern of production,
one country and another. The trade is bilateral if it specialization and trade among regions is the relative
involves only two nations. Example, a trade between availability of factor endowments and factor prices.
Nigeria and USA. The trade is multilateral if it involves Regions or countries have different factor endowments
more than two countries. Example, a trade between and factor prices. Countries in which capital is
Nigeria, Japan and USA. Commodities produced at relatively plentiful and labour relatively scarce will tend
home country and sold to other countries are called to export capital-intensive products and import labour-
exports and commodities purchased from other intensive products, while countries in which labour is
countries are called imports. International trade is the relatively plentiful and capital relatively scarce will
exchange of capital, goods and services across the tend to export labour-intensive products and import
international borders or territories (Yakubu & capital-intensive products. To Ohlin, the immediate
Akanegbu, 2015). cause of international trade always is that some
commodities can be bought more cheaply from other
2.1.2 Poverty Reduction regions whereas in the same region their production is
Poverty reduction, poverty relief, or poverty possible at high prices. Thus, the main cause of trade
alleviation, is a set of measures, between regions is the difference in prices of
both economic and humanitarian, that are intended to commodities based on relative factor endowments and
permanently lift people out of poverty. (Gafar, Mukaila, factor prices.
Raji & Ajayi, 2011). Poverty can be seen from two
different perspectives: (i) ―moneylessness‖ which Some countries are relatively well-endowed with
means both an insufficiency of cash and chronic capital: the typical worker has plenty of machinery and
inadequacy of resources of all types to satisfy basic equipment to assist with the work. In such
human needs, such as, nutrition, rest, warmth and body countries, wage rates generally are high; as a result, the
care; and (ii) ―powerlessness‖ meaning those who lack costs of producing labour-intensive goods—such
the opportunities and choices open to them and whose as textiles, sporting goods, and simple consumer
lives seem to them to be governed by forces and electronics—tend to be more expensive than in
persons outside their control. That is, in positions of countries with plentiful labour and low wage rates. On
authority or by perceived ―evil forces‖ or ―hard luck‖ the other hand, goods requiring much capital and only a
little labour (automobiles and chemicals, for example)
Gafar, Mukaila, Raji and Ajayi, (2011) saw poverty tend to be relatively inexpensive in countries with
from five dimensions of deprivation: (i) personal and plentiful and cheap capital. Thus, countries with
physical deprivation experienced from health, abundant capital should generally be able to produce
nutritional, literacy, educational disability and lack of capital-intensive goods relatively inexpensively,
self-confidence; (ii) economic deprivation drawn from exporting them in order to pay for imports of labour-
lack of access to property, income, assets, factors of intensive goods. In the Heckscher-Ohlin theory, it is not
production and finance; (iii) social deprivation as a the absolute amount of capital that is important; rather,
result of denial from full participation in social, political it is the amount of capital per worker. A small country
and economic activities; (iv) cultural deprivation in like Luxembourg has much less capital in total than
terms of lack of access to values, beliefs, knowledge, India, but Luxembourg has more capital per worker.
information and attitudes which deprives the people the Accordingly, the Heckscher-Ohlin theory predicts that
control of their own destines; and (v) political Luxembourg will export capital-intensive products to
deprivation in term of lack of political voice to partake India and import labour-intensive products in return.

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output of a nation does not dependent on consumption,
Despite its plausibility, the Heckscher-Ohlin theory investment and government expenditure and net export
is frequently at variance with the actual patterns of only. Regardless of these criticisms this theory has been
international trade. One early study of the Heckscher- instrumental in research studies concerning economic
Ohlin theory was carried out by Wassily Leontief, a growth and government expenditure and net export. In
Russian-born U.S. economist. Leontief observed that spite of these criticisms, the theory of economic growth
the United States was relatively well-endowed with determination in an open economy will be adopted in
capital. According to the theory, therefore, the United this work with modification where the TOT will be
States should export capital-intensive goods and import factored-in as the independent variable.
labour-intensive ones. He found that the opposite was in
fact the case: U.S. exports are generally more labour- 2.3 Empirical Literature
intensive than the types of products that the United The link between international trade and poverty
States imports. Because his findings were the opposite reduction has attracted the attention of the researchers
of those predicted by the theory, they are known as and scholars. The empirical review of literature was
the Leontief Paradox. written as follows:

2.2.5 Keynesian Theory of Income Determination in Komal and Madan, (2020) conducted a study to
an Open Economy examine the impact of India’s exports intensity on
The theory of income determination in an open poverty outcomes. With poverty as a focal point, the
economy was propounded by John Maynard Keynes in international trade in India is examined together with a
1936. It involved the remove of assumption that there wide range of macro variables in order to trace down
are no exports or imports and government expenditure the poverty-reducing impact of trade. Using a case
in national income analysis. This means that imports study approach, time series data on India is taken for
and exports and government expenditure and taxation the post-globalization period of 1990–2012. The key
are added in the theory of open economy national dependent variable is poverty, which is measured as
income analysis. Government expenditures are like poverty headcount as wells as poverty gap. The model
investment because they raise the demand for goods. is regressed using classical Ordinary Least Squares
They are injections in that national income. On the (OLS) as well as system Generalized Method of
other hand, taxes are leakages in the national income Moments (GMM) estimator in order to control
like savings because they tend to reduce the demand for endogeneity and reverse causality in the model. The
consumer goods. The impact of exports and imports is results using basic OLS regression state that poverty
similar to that of the government expenditure. Exports reduces as exports increases. When the model is tested
are injections because they increase the demand for using the GMM approach, the empirical results do not
goods in the same economy. Imports, on the other hand, show any significant relationship between poverty and
are leakages in the national income because they exports for the basic model. However, when interaction
represent the supply of goods to the given economy. terms of control variables are brought in the model, the
results change. The results thus suggest that globalized
The analysis of the determination of income in an trade of goods may be an engine for poverty reduction
open economy is based on the following assumptions. in India, when it is complemented with the right
A) The domestic economy international trade is small domestic policies.
relative to total trade b) There is less than full
employment in the economy c) The general price level Sheereen, (2020) conducted a study to investigate
is constant up to the full employment level d) Exchange the impact of trade on poverty reduction in a small
rate area fixed e) There are no tariffs, trade and island of Mauritius over the time period of 1990–2017.
exchange restrictions f) Gross exports are determined Specially, the study examined the impact of trade
by external factors g) Export (X), investment (I) and openness, value of export and value of import on
government expenditure (G) are autonomous g) poverty reduction in small island of Mauritius. The
Consumption (C), imports (M) , savings (S) and taxes study adopted ex post facto research design. The
(T) are each a fixed proportion of income (Y) and their methods of data analysis were unit root test, Johansen
relationship with income are linear.. co-integration test, granger causality analysis and vector
error correction model. The study found that trade
Functional equation of an open economy theory is reduces poverty in the long, rather than the short run.
represented as: Y=C+I+G+(X-M), where Y=National Moreover, the study also shows that economic growth
Income, C= Consumption Expenditure, I= Investment as well as education is important to alleviate poverty in
Expenditure, G= Government Expenditure and Nd = net the country. Hence, it is recommended that the
trade (Jhingan, 2008). government should an export-led poverty Reduction
Programme, which will integrate poor communities into
This theory has been criticized for its unrealistic trade. Other social protections and social policies like
assumptions, first constant consumption is not realistic, the provision of welfare benefits are recommended to
second price is not constant in reality, and thirdly total reduce poverty level in the country.
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Adegbemi, Babatunde and Ogundajo, (2019) International trade stimulates poverty reduction or
investigate the possible nexus between trade promotes poverty as empirical result varies from region
liberalization and poverty in 21 African countries to region and country to country. The study will provide
covering the period 2005–2014. The study deployed the explanation to the direction effect of international trade
following econometric tests: descriptive statistics; the on poverty reduction thereby bridge existing gap.
correlation matrix and variance inflator; the panel unit
root test; the pooled OLS technique; and the panel co-
integration test (Johansen co-integration test). In order
METHODOLOGY
to confirm the robustness and validity of the regression This study made use of expost-facto research design
model result, Ramsey RESET, cross dependence, which enables us to measure the effect or relationship
autocorrelation and heteroscedasticity tests were between dependence variable and explanatory variables
conducted. The findings reveal that foreign direct using time-series secondary data. The data analytical
investment and inflation rate had a positive relationship techniques were Augmented Dickey-Fuller Unit Root
with the human development index while exchange test statistic Johansen Co-integration test were pre-
rates and trade openness were negatively related to estimation test carried out in the study.
poverty level at the 5percent level. The study Heteroscedasticity White Test, Ramsey Reset, Jarque
recommended urgent policy measures aimed at Bera, Breuch-Godfrey Serial Correlation LM Test and
revamping the poverty alleviation programmes. The Error Correction Model.
study recommended that in a bid to diversify export
market, developing countries should target other 3.2 Theoretical Framework
developing countries in the spirit of South–South The study adopts the work of Keynesian framework.
cooperation. In a simple Keynesian framework, the desired aggregate
demand relationship in the goods market in the
Komal, and Madan, (2017) conducted a study to Keynesian framework is expressed as follows: Y= C +
identify the role of trade in growth and poverty I+G+ (X-
reduction: a review of literature with special reference M)……………………………………………….1
to India. The study intends to achieve the following
objectives: (a) to examine the literature outlining the 3.3 Model Specification
theories supporting poverty and trade linkages; (b) to This study specifically adopts the model of
examine the literature implying that economic growth Sheereen, (2020) to study the impact of international
impacts poverty and (c) to examine the literature trade on poverty reduction. Thus, the model is
implying that exports impacts poverty. This paper tries represented in a functional form as shown below:
to assess the relevance of trade in reducing poverty in
India and promoting pro-poor growth through a survey POVERTY=f (TEV, TIV, FDI, EXR, TRAOPEN,
of the existing literature and concludes that a strong TRADE) 3.8
performance on the international market can help Where, POVERTY is poverty head count ratio
reduce domestic poverty in developing countries. The representing Percentage of population below $1.25 a
method of data was literature content analysis. The day poverty line (%) as a proxy for poverty reduction,
findings revealed that there is strong empirical evidence TEV is total export value, TIV is total import value,
in favour of the growth enhancing effects of exports and FDI is foreign direct investment, EXR is exchange rate,
trade in general. Furthermore, a number of detailed TRAOPEN is trade openness (Trade openness
microeconomic studies using firm-level and household calculated as the ratio of import plus export to GDP (%)
data show that exporting can lead to productivity, and TRADE is trade tariff. In a linear function, it is
growth and directly reduce poverty through wage and represented as follows:
employment effects. POVERTYt = β0 + β1TEVt- β2TIVt+ β3FDIt + β4EXRt +
β5 TRAOPENt + β6 TRADEt + µt 3.9
2.5 Gap in Literature Where: β0 = Constant term, β1 to β6 = Regression
After literature review, it is verify that there is no coefficient, µt = Error Term, t = the period
clear consensus till date in the literature as to whether

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Presentation of Data and Results

Table 4.1 Result of Descriptive Statistics

POVERTY TEV TIV FDI TRAOPEN EXR TRADE
Mean 1776.072 381062.7 418420.3 428567.0 82430.95 70054.95 608998.6
Median 2588.105 140106.8 128929.1 113623.6 23211.80 97.39930 162181.3
Maximum 4188.890 1945723. 1920900. 1488922. 1399400. 1399400. 1874638.
Minimum 0.380000 7502.500 7201.200 264.3000 0.000000 0.546400 2880.200
Std. Dev. 1485.289 550428.3 569468.1 527873.8 221151.3 308834.7 745344.5
Skewness -0.131613 1.711784 1.415656 0.993379 5.462560 4.129483 0.869145
Kurtosis 1.379794 4.719607 3.819595 2.497168 33.08371 18.05263 2.028158

Jarque-Bera 4.490590 24.46312 14.48010 7.000076 1707.313 491.3202 6.610211

Probability 0.105896 0.000005 0.000717 0.030196 0.000000 0.000000 0.036695

Sum 71042.88 15242509 16736810 17142679 3297238. 2802198. 24359945

Sum Sq. Dev. 86037294 1.18E+13 1.26E+13 1.09E+13 1.91E+12 3.72E+12 2.17E+13

Observations 40 40 40 40 40 40 40
Source: e-view’s Result
The descriptive statistics of data show nature and common statistics of the variables namely mean, median,
maximum, minimum, standard deviation and sum of the variable.

4.2 Unit Root Test using Augmented Dickey-Fuller Test

It has been shown in econometric studies that most essential. Stationarity test was therefore carried out
macroeconomic time series are not stationary at levels. using Augmented Dickey-Fuller (ADF) approaches for
Giving this knowledge, testing for stationarity of unit root testing which are reported in table 4.1.In order
variables to obtain a more reliable result becomes very to examine the unit root status of the variables.

Table 4.1: Results of Stationarity (unit root) test.

Variables ADF- Critical Value Remark
Statistic
POVERTY -5.057598 1% level = -3.615588 1(1)
5% level = -2.941145
10% level = -2.609068
TEV -5.484595 1% level = -3.615588 1(1)
5% level = -2.941145
10% level = -2.609068
TIV -5.535829 1% level = -3.615588 1(1)
5% level = -2.941145
10% level = -2.609068
FDI -4.651514 1% level = -3.615588 1(1)
5% level = -2.941145
10% level = -2.609068
TRAOPEN -7.374461 1% level = -3.615588 1(1)
5% level = -2.941145
10% level = -2.609068
EXR -6.163554 1% level = -3.615588 1(1)
5% level = -2.941145
10% level = -2.609068
TRADE -5.945844 1% level = -3.615588 1(1)
5% level = -2.941145
10% level = -2.609068
Source: Author’s computation from E-view 9

In the table 4.1, the variables that were tested with variable is identified. The Mackinnon critical values at
unit root are shown, the values for Augmented Dickey- 5% level of significant were pointed out. The order of
Fuller (ADF) statistic is presented, the lag level of each integration of each variable was enumerated, and finally

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the stationarity position of each variable was also equilibrium relationship between the variables. Separate
stated. When Augmented Dickey-Fuller statistic is co-integration tests were carried out on poverty rate
greater than Mackinnon 5 percent critical value in (POVERTY), total export value (TEV), total import
absolute term, it is concluded that the variable is value (TIV), foreign direct investment (FDI), trade
stationary. These variables Poverty rate (POVERTY), openness (TRAOPEN), foreign exchange rate (EXR)
Foreign trade exchange rate (EXR), Total Export value and trade tariff (TRADE). Non-stationary time-series
(TEV), Total Import value (TIV), Foreign Direct can be co-integrated if there are linear combinations of
Investment (FDI), trade openness (TRAOPEN), and them that are stationary, that is, the linear combination
Trade Tariff (TRADE) are stationary at first difference, does not have a stochastic trend. In other words, if two
that is they are I(1) process. Therefore, they contain unit or more I(1) variables are co-integrated, they must obey
root. The existence of unit root in most variables paves an equilibrium relationship in the long-run, although
way for further investigation on the nature of the long they may diverge substantially from that equilibrium in
run relationship among the variables. the short run. The co-integration tests are based on the
Johansen and Juselius (1989) test. Tables 4.3.1 present
4.3 Johansen Co-integration Test Results the co-integration test results.
Since all the variables are integrated of order, 1 (1). Ho = There is no co-integration (no long run
It is necessary to determine the existence of long run relationship among Variable)

Table 4.3 Johansen Co-integration Test Results

Date: 08/01/21 Time: 16:34
Sample (adjusted): 1982 2019
Included observations: 38 after adjustments
Trend assumption: Linear deterministic trend
Series: POVERTY TEV TIV FDI TRAOPEN EXR TRADE
Lags interval (in first differences): 1 to 1

Unrestricted Cointegration Rank Test (Trace)

Hypothesized Trace 0.05

No. of CE(s) Eigenvalue Statistic Critical Value Prob.**

None * 0.847474 220.5428 125.6154 0.0000

At most 1 * 0.729872 149.0867 95.75366 0.0000
At most 2 * 0.658692 99.35002 69.81889 0.0000
At most 3 * 0.478618 58.50114 47.85613 0.0037
At most 4 * 0.404942 33.75281 29.79707 0.0166
At most 5 0.225355 14.02716 15.49471 0.0822
At most 6 * 0.107550 4.323833 3.841466 0.0376

Trace test indicates 5 cointegrating eqn(s) at the 0.05 level

* denotes rejection of the hypothesis at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values
Source: Author’s Computation from E-view 9

The co-integration results in table 4.3 for the model among the variables (POVERTY, TEV, TIV, FDI,
(POVERTY, TEV, TIV, FDI, TRAOPEN, EXR, and TRAOPEN, EXR, and TRADE). We therefore reject
TRADE) reveals that trace test statistics indicates 5 co- the null hypothesis of no co-integration amongst the
integrating equation(s) at the 5 percent level of variables and accept the alternative hypothesis.
significance. Thus, there is a long-run relationship

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4.4 Estimation of Regression Model

Table 4.4 Empirical Results of the error correction Model (ECM)

Dependent Variable: D(POVERTY,1)
Method: Least Squares
Date: 08/01/21 Time: 14:58
Sample (adjusted): 1981 2019
Included observations: 39 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.

C 0.848661 0.442711 1.916964 0.0645

D(TEV,1) 0.558706 0.092206 6.059323 0.0005
D(TIV,1) -0.796786 0.234566 -3.396860 0.0005
D(FDI,1) 0.303407 1.090706 0.278174 0.8596
D(EXR,1) -0.618907 0.201176 -3.076445 0.0004
D(TRAOPEN,1) 0.676356 0.090621 7.463568 0.0003
D(TRADE,1) -0.327006 0.109906 -2.975324 0.0004
ECM-1 -0.187255 0.097370 -7.923133 0.0007

R-squared 0.803124 Mean dependent var 0.507692

Adjusted R-squared 0.797249 S.D. dependent var 2.332988
S.E. of regression 2.324517 Akaike info criterion 4.705584
Sum squared resid 167.5048 Schwarz criterion 5.046827
Log likelihood -83.75888 Hannan-Quinn criter. 4.828019
F-statistic 15.39639 Durbin-Watson stat 2.188339
Prob(F-statistic) 0.000005

Source: Author’s Computation from E-view 9

The result of the regression analysis represents the impact on poverty rate (proxy for poverty reduction)
model for the impact of international trade on poverty because probability value of 0.0004 which is less than
reduction in Nigeria. The empirical result shows that 0.05. The trade tariff (TRADE) has negative and
the coefficient of total export value (TEV) has positive significant impact on poverty rate (proxy for poverty
and significant impact on poverty rate (proxy for reduction) because probability value of 0.0004 which is
poverty reduction) because probability value of 0.0005 less than 0.05. The result of the F – statistical test shows
which is less than 0.05. The empirical result shows that that the overall regression of the variables is statistically
the coefficient of total import value (TIV) has negative significance. This is because observed values of the F –
and significant impact on poverty rate (proxy for statistics (15.3963) is greater than its critical value
poverty reduction) because probability value of 0.0005 (1.864251). Again, our empirical result shows that the
which is less than 0.05. The empirical result shows that R-squared (R2) is 0.803124. The coefficient of ECM
the coefficient of foreign direct investment (FDI) has statistic is (-0.18725). The ECM result indicates that
positive and insignificant impact on poverty rate (proxy 18% of errors have been corrected from short run
for poverty reduction) because probability value of adjustment to the long run. In other words, ECM
0.8596 which is greater than 0.05. The trade openness statistic shows that the model has 18 percent degree of
(TRAOPEN) has positive and significant impact on adjustment from short-run to long-run equilibrium. This
poverty rate (proxy for poverty reduction) probability is a low speed of adjustment to equilibrium after a
value of 0.0003 which is less than 0.05. The foreign shock
exchange rate (EXR) has negative and significant
.

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4.5 Econometric /Second Order Test

The null hypothesis; there is Autocorrelation.

Table 4.5 Result of Breuch-Godfrey Serial Correlation LM Test

Breusch-Godfrey Serial Correlation LM Test:

F-statistic 1.34838 Prob. F(1,30) 0.0627

Obs*R-squared 2.04761 Prob. Chi-Square(1) 0.0696

Test Equation:
Dependent Variable: RESID
Method: Least Squares
Date: 09/10/21 Time: 08:20
Sample: 1981 2019
Included observations: 39
Presample missing value lagged residuals set to zero.

Source: Author’s Computation from E-view 9

The Breuch-Godfrey Serial correlation LM Test was used to identify whether the model suffers from autocorrelation
problem. The autocorrelation problem violates ordinary least squares assumption that says there is no correlation among
error terms of different observation. Breuch-Godfrey Serial correlation LM Test is a statistic that ensures that the
assumption of ordinary least squares was not violated. The f-statistic result of Breuch-Godfrey Serial correlation LM
Test is (1.34838) and it P-value is (0.0627). From the results of the above test, the probability values for Lagrange
multiplier (LM) test is greater than 0.05. This implies that there is no serial correlation problem.

R R
4.6 ESULT OF AMSEY ESET EST R T
The null hypothesis; there is Specification Error.

Table: 4.6 Result of Ramsey Reset Test

Ramsey RESET Test
Equation: UNTITLED
Specification: D(POVERTY,1) C D(TEV,1) D(TIV,1) D(FDI,1) D(TRAOPEN,1)
D(EXR,1) D(TRADE,1) ECM-1
Omitted Variables: Squares of fitted values

Value Df Probability
t-statistic 1.325296 30 0.0717
F-statistic 2.105818 (1, 30) 0.0621
Likelihood ratio 2.137321 1 0.0641

F-test summary:
Sum of Sq. Df Mean Squares
Test SSR 27181.80 1 27181.80
Restricted SSR 7733397. 31 249464.4
Unrestricted SSR 7706215. 30 256873.8

LR test summary:
Value Df
Restricted LogL -293.1898 31
Unrestricted LogL -293.1211 30

Unrestricted Test Equation:

Dependent Variable: D(POVERTY,1)
Method: Least Squares
Date: 09/10/21 Time: 08:20
Sample: 1981 2019
Included observations: 39

Source: Author’s Computation from E-view 9

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This second order test checks whether the model of 4.6.3 Histogram Normality Test
the study suffers model specification error. The null Normality test is done to check if the residuals of
hypothesis; there is model specification error. From the the error term have a normal distribution. Normality test
results of the Ramsey Reset test, the probability values is conducted using Jacques-Bera (JB) test. In testing for
(0.0621) for Ramsey Reset’s t-statistics is greater than normality, approach used by Paavola (2006) for testing
0.05. This implies that model include core variables in normality using Jacques-Bera test was adopted.
the model. It does not include superfluous variables.
The functional form of the model is very well specified, Figure 1 presents Normality test for each of the
there is no error of measurement in the regressand and Distribution.
regressors.

20
Series: Residuals
Sample 1981 2019
16 Observations 39

Mean 6.83e-15
12 Median -33.28604
Maximum 2249.355
Minimum -862.4664
Std. Dev. 451.1213
8
Skewness 3.121095
Kurtosis 17.22377
4
Jarque-Bera 392.0808
Probability 0.000000
0
-1000 -500 0 500 1000 1500 2000
Sources: E-view 9.0 Version

Jarque-Bera (JB) test is statistics that compute both reveals that total import value (TIV) has significant
skewness and Kurtosis. Skewness shows the degree impact on the poverty reduction in Nigeria during
symmetry (normal distribution). The normal period covered by the study.
measurement is zero/0. Kurtosis is a statistics that
compute degree of peakedness. The normal 4.7.2 Test of Hypothesis two
measurement is three/3. A distribution is skewed if one HO2 Total export value has no significant impact on
of its tails is longer than the other. A skewed the poverty reduction in Nigeria.
distribution can be positive or negative. Positive skewed The empirical result shows that the coefficient of
distribution means that it has a long tail in total export value (TEV) has positive and significant
the positive direction. Negative skewed distribution impact on poverty rate (proxy for poverty reduction)
means that it has a long tail in the negative direction. because probability value of 0.0005 which is less than
The null hypothesis is that there is no skewness and 0.05. The empirical finding reveals that total export
Kurtosis in the model. We reject the null hypothesis value (TEV) has significant impact on the poverty
because the probability value of Jarqua-Bera statistics reduction in Nigeria during period covered by the study.
(0.0000000) which is less than 0.05. This implies that
the residuals do not follow normal distribution. 4.7.3 Test of Hypothesis Three
HO3 Foreign direct investment has no significant
4.7 Test of Hypotheses impact on the poverty reduction in Nigeria.
The results for the various hypotheses testing are The foreign direct investment (FDI) has positive and
presented in the section. insignificant impact on poverty rate because probability
value of 0.8596 which is greater than 0.05. The
4.7.1 Test of Hypothesis one empirical finding reveals that foreign direct investment
H01 Total import value has no significant impact (FDI) has no significant impact on the poverty
on the poverty reduction in Nigeria. reduction in Nigeria during period covered by the study.
The empirical result shows that the coefficient of
total import value (TIV) has negative and significant 5.1 Summary of Findings
impact on poverty rate because probability value of The following are the major findings of the study:
0.0005 which is less than 0.05. The empirical finding

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i. Total export value (TEV) has positive monetary authority should give priority to
significant impact on poverty reduction since (t exchange rate stability. The government should
– statistics (6.0593) > critical value (1.684). encourage farmers by providing them with loans,
Total export value has 56 percent positive agricultural schools, farm to market roads, as most
significant impact on poverty reduction in of the export goods come from the agricultural
Nigeria. A percent change in Total export sector.
value results to 56 percent increase in poverty 3. The government should start and sustain re-
rate in Nigeria. orientation advertisement for consumption of
ii. Total import value (TIV) has negative made-in-Nigeria goods and reframe from excessive
significant impact on poverty reduction since (t consumption of foreign goods and services so that
– statistics (-3.3968) > critical value (1.684). their imports might be cutoff. Manufacturing
Total import value has 79 percent positive industries should improve on their production so
significant impact on poverty reduction in that their output would be competitive in the global
Nigeria. A percent change in Total import market. Excise duties should be lowered so as to
value results to 79 percent decrease on poverty encourage local industries to export their goods and
rate in Nigeria. services. Lifting of trade barriers on local output
iii. Foreign direct investment (FDI) has positive should not be followed by the introduction of new
insignificant impact on poverty reduction since ones. Only the importation of capital goods that are
(t – statistics (0.2781) < critical value (1.684). essential should be encourages, since not all
Foreign direct investment has 30 percent importation are necessary for economic growth.
positive insignificant impact on poverty
reduction in Nigeria. A percent change in
foreign direct investment results to 30 percent
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