Examining the Mediating Role of Institutional Quality on the Relationship between Trade Openness and Economic Growth in Nigeria

Abstract

This study investigated the relationship between trade openness, institutional quality, and economic growth in Nigeria, addressing the critical question of how governance factors affect the country's trade-driven growth. Using Freedom House data for institutional quality and applying the Augmented Dickey-Fuller (ADF) unit root test along with the ARDL estimation technique, the research aims to assess both the short- and long-term impacts of trade openness on economic performance. Findings reveal that trade openness boosts economic growth by 0.64% to 0.66% in the short run but reduces it by 0.55% in the long run. Political rights consistently have a negative influence on growth, while civil liberties positively contribute 0.013% to short-term growth but are insignificant in the long term. Interaction effects between institutional quality and trade openness show mixed outcomes. The study recommended enhancing governance to balance short-term trade benefits with long-term sustainable growth and highlights the need for policy reform to address institutional weaknesses.