Gravity Model Analysis of Nigeria’s Bilateral Seaborne Import Trade with China, India and the United States of America

Abstract

The quantum and direction of a national foreign trade transaction is generally viewed as a major determinant of the extent of growth and development of the nation in terms of Gross Domestic Product (GDP). The study analyzed the bilateral seaborne import trade between Nigeria and China, Nigeria and the United States, and Nigeria and India using a variant of the Gravity Model of trade by incorporating the population of trading partners, real exchange rate, prevailing freight rates, and spot rates into the original variables of the gravity model, which explain the volume of bilateral trade between the two countries as a function of distance factors and economic size. Secondary data were obtained and used for this study. The results of the study show that the size of the Nigerian economy measured by GDP has a significant influence on the value of Nigeria’s bilateral import shipping trade with the U.S.A., China, and India over the period covered in the study. The findings of the study indicate, among other things, a unit increase in the container TEU transport cost for imports from the United States and a unit increase in the U.S. GDP and a unit increase in Nigeria’s bilateral real exchange rate will decrease the value of Nigeria’s import trade flow from the U.S.A. by 18.8, 383.4units and 10.09 units respectively. The results also show that distance factors consisting of TEU transportation cost and per ton transportation cost for wet bulk cargo, and the internal factors consisting of the size of the Nigerian economy/GDP, local population, and real effective exchange rate of Nigeria, individually have no significant influence on the value of Nigeria’s bilateral shipping import trade from the United States. The results provides evidence that increasing trend in the growth of Nigeria’s GDP have positive correlation with growth in the values of her bilateral shipping import trade with China, India and the U.S.A. It was recommended that Nigeria’s bilateral foreign trade policy be developed to actualize the improvement in the value of Nigeria’s balance of trade with bilateral trade partners in line with the rate of change of the internal and external factors that have a significant influence on the direction of trade.