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Abstract

Nigeria is often susceptible to volatile terms of trade due to its dependence on primary commodities with unstable prices. This study, therefore, made its contribution to literature by empirically analysing terms of trade volatility in Nigeria. This study used quarterly time series data ranging from 1981Q1 to 2016Q4, obtained from the World Bank (2017) database. Asymmetries in terms of trade volatility were determined by applying the TGARCH (1, 1) model. The study revealed that terms of trade entail asymmetric effects, suggesting that bad times of adverse terms of trade shocks have a more pronounced effect than it does in good times. The empirical findings mainly imply, amongst other things, that to reduce terms of trade volatility, Nigeria needs to imbibe the political will to save through fiscal discipline and instituting a strong competent framework, to enable her to stabilize the economy in situations of adverse shocks. The government should also encourage indigenous producers by providing and investing in a conducive environment that will reduce the cost of production and enable businesses to thrive.