Trade Openness and Financial Development Nexus in Nigeria: A Bayesian VAR (BVAR) Approach

Abstract

In the aftermath of the recent global economic crisis, many authors have identified trade as one of the mechanisms through which financial stress is transmitted from the developed economies into emerging economies. Moreover, the financial sector plays a key role in the transmission. This paper examines the link between trade and financial development by applying Bayesian Vector Autoregressive (BVAR) technique with Litterman/Minnesota priors to Nigerian data from 1981 to 2016. We find proof of the existence of a positive significant relationship between trade openness and financial development in Nigeria during the period under review. We thus recommend that the Nigerian government needs to reinforce measures that are already in place to foster trade with the rest of the world for further deepening of the Nigerian financial system