IMPACT OF TRADE OPENNESS ON INFLATIONARY TRENDS IN NIGERIA FROM 1990 – 2023

ABSTRACT This study examines the impact of trade openness on inflation in Nigeria from 1990 to 2023, aiming to understand the dynamics between international trade and domestic price levels in a developing economy. The analysis includes time series data and control variables such as money supply growth, exchange rate fluctuations, and fiscal deficits. Key sources include the World Bank's World Development Indicators (WDI), International Monetary Fund's (IMF), International Financial Statistics (IFS) and Nigeria's National Bureau of Statistics (NBS) for comprehensive data on trade openness metrics. Contrary to theoretical expectations, the findings reveal a negative, though not statistically significant, relationship between trade openness and inflation. The coefficient for trade openness is -0.482112, with a p-value of 0.0643, suggesting that increased trade openness is associated with a decrease in inflation. However, the relationship is overshadowed by more significant domestic factors like money supply, exchange rate, and fiscal deficits, which have a stronger influence on inflation. The high explanatory power of the model (R² = 0.971676) underscores the importance of these domestic variables. This study challenges the straightforward application of the Balassa-Samuelson effect to Nigeria, highlighting the need for a multifaceted approach to inflation management that considers both global and domestic economic conditions. The research concludes by calling for further exploration of non-linear relationships and structural factors in future studies. Hence it was recommended that the Nigerian government and central bank prioritize effective monetary policy management, fiscal discipline, and exchange rate stability to control inflationary pressures. This approach would go along way in monitoring of money supply growth, prudent fiscal spending, and measures to stabilize the exchange rate.