Economic Diversification: Imperative for Trade and Industrial Policies in Nigeria

Abstract The sharp and continuous decline in crude oil prices since the mid-2014, along with the lackluster efforts at diversifying the sources of revenue and foreign exchange in the economy, incontrovertibly led to the recession that greeted Nigeria in the second quarter of 2016 as manifested by fiscal crisis. Hence this study examines the imperative of economic diversification in trade and industrial policies in Nigeria. In order to characterize the pattern of trade and industrial transformation in the diversification process, we adopted the augmented version of Kaldor’s first law which establishes a link between manufacturing output and economic growth. Based on annualized secondary time series, spanning from 1970 to 2015, obtained from the CBN statistical bulletin of various years, the study employed the contemporary econometric techniques of cointegration and error correction mechanism, within the framework of the Autoregressive Distributed Lag (ARDL) model as proposed by Pesaran et al (2001) in achieving its objective. The results show that manufacturing output, crude petroleum and natural gas production, as well as mining production have significant positive longrun impact on economic growth in Nigeria. This implies that economic diversification-based industrial policies will definitely bring about the desired economic outcomes in Nigeria. We therefore conclude that trade and industrial policies should be geared towards diversification of the economy.