Modelling Nigeria’s Gross Domestic Product – A Modified Vector Autoregressive Model (MVAR) approach

Abstract

On yearly basis, the total value of all goods produced and services rendered in a country is referred to as GDP. It is an indicator of a nation’s standard of living and a measure of its economic status. The insecurity level cum poor economy of the country which has grossly affected the standard of living of Nigerians necessitated this study. We adopted a Modified Vector Autoregressive (MVAR) modelling approach based on the absolute values of the mean deviation to capture the relationship between the main effect and interaction effects of Agriculture, Trade and Industry on Nigeria’s GDP. Due to the non-stationarity of the process, the random walk transformation technique was considered. The Augmented Dickey-Fuller (ADF) test confirmed that the process is stationary after transformation. The diagnostic tests showed that the data were not highly correlated and no presence of heteroscedasticity. The study confirmed that the MVAR model gave a better fitting of Nigeria's Gross Domestic Product compared to the usual VAR model due to its lower AIC and BIC values.