Sustainable economic growth, foreign goods consumption and foreign exchange dynamics: Johansen cointegration approach

Abstract

The allure of foreign products, often perceived as superior in quality and prestige, has led to a robust demand for imported goods ranging from everyday consumer items to luxury products. The magnitude of household final consumption expenditure has far reaching implication on sustainable economic growth and development of Nigeria's economy. This study examined the impact of foreign goods consumption and foreign exchange on Nigeria's economic growth sustainability, focusing on real gross domestic product (GDP) as a proxy for sustainable economic growth, imports (IMP) as a measure of foreign goods consumption, FDI, and exchange rates (EXR) as control or intermediate variables in line with theoretical underpinning. The study employs the Ordinary Least Square (OLS) model to explore the linear relationships among the variables, with emphasis on Johansen co-integration to ascertain the long run effect. The Johansen co-integration trace test result suggests that there exists a long-run relationship between the variables. The study also found that foreign made goods have done more harm than good to the Nigeria economy. This suggests that the high level of importation, especially of consumer goods, do drain foreign exchange reserves, increased trade deficits, and weakens domestic industries by creating competition that local producers cannot withstand. This study further revealed that though foreign direct investment is an engine of economic growth, has not show a significant relationship with economic growth, highlighting potential inefficiencies in current investment strategies and it negative implications on sustainable economic growth of Nigeria. Based on the findings, the study recommends that government should increase investments in manufacturing sector which in turn promote economic growth. With increased national investment especially in manufacturing sector, goods will be produced which would be enough to consume domestically and export thereby creating a favourable balance of payment for Nigeria as her imports reduces and exports increases.