Intensive and Extensive Margins of Export Diversification as Strategies for Sustainable Economic Growth: Evidence from the Nigerian Economy

Published date01 May 2024
DOIhttp://doi.org/10.1177/00157325221145397
AuthorAdemola Obafemi Young
Date01 May 2024
Subject MatterOriginal Articles
Intensive and Extensive
Margins of Export
Diversification as
Strategies for
Sustainable
Economic Growth:
Evidence from the
Nigerian Economy
Ademola Obafemi Young1
Abstract
Two opposite strands of literature analysing export diversification’s role in pro-
moting sustainable growth have evolved in international economics and devel-
opment, namely, the intensive and extensive margins of exports. This study
empirically investigates which of the margin is more useful towards promot-
ing sustainable growth using annual time series data of Nigeria for the period
1960–2021. Autoregressive distributed lag (ARDL) and innovative accounting
procedure were employed. The ARDL results reveal that both margins sig-
nificantly enhance growth in short and long run. However, importance of the
extensive margin, in aggregate, dominates that of the intensive margin. Likewise,
the results from innovative accounting procedures reveal that although both
margins contribute positively to growth, the contribution to growth of exten-
sive margin dominates over that of the intensive margin. These results, thus, lend
credence to the extensive-margin exposition, which postulates that the export
of extant commodities to new market destinations or export of new com-
modities to new and/or old market destinations plays a relatively more impor-
tant role in export growth/diversification and, ultimately, sustainable growth.
The study recommends that governments should develop and implement eco-
nomic policies aimed at enhancing exports of value-added commodities—due to
their relatively high income and price elasticities over primary commodities—to
maximise the benefits in the extensive margin.
Original Article
Foreign Trade Review
59(2) 187–224, 2024
© 2023 Indian Institute of
Foreign Trade
Article reuse guidelines:
in.sagepub.com/journals-permissions-india
DOI: 10.1177/00157325221145397
journals.sagepub.com/home/ftr
1 Department of Economics, College of Humanities, Management and Social Sciences, Mountain
Top University, Ogun State, Nigeria
Corresponding author:
Ademola Obafemi Young, Department of Economics, College of Humanities, Management and Social
Sciences, Mountain Top University, Km 12, Lagos Ibadan Expressway, Ogun State, Nigeria.
E-mail: aoyoung@mtu.edu.ng
188 Foreign Trade Review 59(2)
JEL Codes: F10, F14, O10, O12, O50, O55
Keywords
ARDL, extensive margin, intensive margin, export diversification, dualistic growth
model, VAR
Introduction
Two opposite strands of theoretical literature analysing export diversification’s
role in promoting sustainable growth have evolved in international economics and
development, namely, the intensive and extensive margins of exports (Veeramani
et al., 2018). The former, whose notion is grounded in Armington’s (1969) model,
postulates that export of extant products/commodities to old market destinations,
at higher prices and/or higher volumes (Turkcan, 2014b), is the principal avenue
for export growth/diversification and, ultimately, economic growth (Bista &
Sheridan, 2021). The latter, whose standpoint is based on the monopolistic com-
petitive model put forward by Krugman (1980), maintains that export of existing
products to new destinations (Turkcan, 2014b) or export of new products to old
and/or new destinations (Amurgo-Pacheco & Pierola, 2008; Vakataki‘Ofa et al.,
2016) is instead more appropriate and plays the dominant role (Gao et al., 2014)
in economic growth performance.
A large number of studies have analysed the relevance and macroeconomic
implications of the two propositions. Empirical findings, however, have been
mixed and inconclusive. Although some empirical studies (Adelan & Kakinaka,
2018; Bingzhan, 2011; Bojnec et al., 2021; Ekmen-Özçelik & Erlat, 2013; Gao
et al., 2014; Islam, 2014; Jongwanich, 2020; Otamurodov et al., 2016; Sun &
Xian-de, 2018; Tanasritunyakul, 2021; Tianhao & Jing, 2021; Turkcan, 2014a;
Veeramani et al., 2018; Zhang et al., 2017; Zhou et al., 2013) lend credence to the
intensive margin proposition, several others (Aldan & Çulha, 2016; Amarsanaa &
Kurokawa, 2021; Banda & Simumba, 2013; Bista & Sheridan, 2021; Cho & Díaz,
2018; Dutt et al., 2013; Huchet‐Bourdon et al., 2018; Kehoe & Ruhl, 2013; Mora
& Olabisi, 2021; Rahmouni, 2020; Turkcan, 2014b; Zhao et al., 2013) also
validate the extensive margin exposition.
In Nigeria, ever since oil exploration and production activities commenced in
1958, oil export has continued to play dominant roles in the economy. Historically,
it accounts for over 90% of export earnings and about 80% of federal government
revenue, and generates more than 25% of the country’s gross domestic product
(GDP; Agbaeze et al., 2015; Okotie, 2018). It also provides approximately 90% of
foreign exchange earnings (Okotie, 2018) and about 70% of budget revenues
(Olayungbo, 2019). Undoubtedly, since the discovery in 1956 (Emediegwu &
Okeke, 2017; Ogbuigwe, 2018), Nigeria’s economy has benefited inestimably
from oil exports. The country’s excessive reliance on oil revenues (Aigbedion & Iyayi,
2007) compounded by oil price volatility, however, has triggered macroeconomic
challenges (Akinlo, 2012) and structural difficulties (Aigbedion & Iyayi, 2007)
Young 189
in the economy; deteriorating external debt situation (Pinto, 1987); severe peren-
nial fiscal contraction; a persistently unhealthy domestic business environment;
high level of poverty compounded by insurgency and acute unemployment rate
(Njoku & Ihugba, 2011); and underdevelopment of manufacturing capacity for
industrial exports aggravated by the neglect of non-oil sectors of the economy
where potential remains great (Riti et al., 2016) but largely unexploited.
To resolve the dismal consequences of overreliance of the country on oil (Agbaeze
et al., 2015) and, most essentially, diversify the economy’s productive base, a number
of socio-economic programmes and policies, at different periods, were designed and
implemented by successive Nigerian governments (Kolawole et al., 2015). Prominent
among these are the 1982 Economic Stabilization Act; the 1986 Structural Adjustment
Programme; the Rolling Plans of 1990–1992, 1993–1995, 1994–1996, 1997–1999;
National Economic Direction of 1999–2003; the 2003–2007 National Economic
Empowerment and Development Strategy; the Seven-Point Agenda of 2007–2009;
the 2011–2015 Transformation Agenda; the 2012–2017 Subsidy Reinvestment and
Empowerment Programme; Nigeria’s Vision 20: 2020; and the recent 2017–2020
Economic Recovery and Growth Plans. Although the content of these programmes
appears feasible, the entire anticipated benefits are still far (Eko et al., 2013) from
being realised as the economy is hitherto dominated by oil sector.
Several factors have been identified as possible causes of the failure of the
policies (Obamwonyi & Aibieyi, 2014). Prominent among these are the incoher-
ent implementation of the policies (Makinde, 2005) and neglect of country-
specific circumstances which ought to, as a matter of necessity, be considered.
Informed by the need to proffer solutions to the implementation problem and the
country’s peculiar circumstances, the questions as to which priority sectors that
Nigeria should target for export diversification policy and how to best promote
the strategy have emerged in the literature. Empirically, a replete of studies
(Ajibola et al., 2019; Eko et al., 2013; Ideh et al., 2021; Madichie et al., 2019;
Omoju & Ikhide, 2020; Riti et al., 2016; Umeji, 2019) have advocated agriculture,
industries, tourism, services sector and several other revenue-earning sectors as
plausible options for diversifying the economy.
Motivated by the long-standing efforts of the government to diversify the
economy’s productive base, coupled with the search for the best export diversifi-
cation strategy, and unresolved debate, we empirically investigate whether intensive
margin or extensive margin of diversification is more useful towards promoting
sustainable growth in Nigeria. Although, as explicated in the literature cited
above, empirical studies on the subject occupy a sizable portion of economic
literature (Akinlo, 2009), nonetheless, an in-depth and exhaustive reading of the
literature reveals that, apart from the ambivalence of the findings, most of the
empirical studies focused on advanced (notably, European, Asian, American) and
other industrialised economies. Very little, if any (Arize, 1996), has been reported
exclusively for African countries (in particular, oil-producing African economies)
and are mainly on growth effects of overall export diversification. Moreover, gen-
eralised studies across countries (Adedokun, 2013) utilising panel (sometimes,
cross-sectional/cross-country) data appear to dominate the empirical inquiries.
Additionally, as observed in the literature, empirical studies analysing the subject,

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