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ABSTRACT
This study sought to investigate the impact of monetary policy and fiscal policy on trade openness in Nigeria, with a focus on determining the dynamic responses of each policy and the policy that best suits trade openness in Nigeria. The model employed in this study is the Error Correction Mechanism. The time frame for this study spanned between the years 1960-2018. This study found that there is a long-run and short-run relationship among monetary policy, fiscal policy and trade openness in Nigeria. However, the result showed that only the independent variable of fiscal policy, that is, government expenditure was significant in determining trade openness in Nigeria at 5% level of significance. This implies that fiscal actions is relatively greater and more reliable, stable, strong and effective in determining trade openness in Nigeria compared to monetary actions. Hence, sharp fluctuations of such monetary actions indicate that they are more distortionary than achieving the desired impact or direction on the target variables. However, it was suggested that there should be effective monetary policy management to achieve the objective of price stability by government through an expansion of money supply towards productive activities and capital project is recommended for an effective monetary policy in achieving high economic growth in Nigeria. Also, an increase in government spending to undertake industrial activities in the Nigeria is recommended for an effective fiscal policy to achieve rapid economic growth. Thus, policy makers should focus on both monetary policy and fiscal policy in order to ensure economic growth in the country.
