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The Two-Gap Model of Economic Growth in Nigeria: Vector Autoregression (VAR) Approach

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  • Akande, Emmanuel
  • Ola-David, Oluyomi

Abstract

This paper explores the relevance and application of the theoretical prescriptions of the Two-Gap model to the Nigerian economic growth situation from 1970-2007. A cointegration test confirmed that long run relationship exists among the variables, giving an indication that they have the tendency to reach equilibrium in the long run. It was apparent from the results of the autoregression analysis that foreign aid does not give clear evidence of an imperative growth factor in Nigeria, FDI does but is volatile. This further confirmed the transfer paradox – which posits that foreign aid tends to immiserate the recipient country. The endogeneity of aid on real GDP re-emphasizes the imperative of economic reforms as a condition for aid. The study found no theoretical or empirical justification for the assumption that filling a “trade gap” determined by “aid requirements” will boost trade and growth in the Nigerian economy.

Suggested Citation

  • Akande, Emmanuel & Ola-David, Oluyomi, 2010. "The Two-Gap Model of Economic Growth in Nigeria: Vector Autoregression (VAR) Approach," Conference papers 330245, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:330245
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    References listed on IDEAS

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