An Original Investigation into the Macroeconomic Consequences of Structural Reforms in Nigeria Using a DSGE Approach

Structural reforms including privatisation, trade liberalisation, and deregulation have been implemented across successive Nigerian governments with contested macroeconomic consequences, and conducting a rigorous original analysis using a DSGE framework calibrated to Nigeria's economy provides a significant methodological and policy contribution. This study conducted an original investigation into the macroeconomic consequences of structural reforms in Nigeria using a Dynamic Stochastic General Equilibrium model calibrated to Nigerian quarterly data from 1999 to 2022. The DSGE model incorporated Nigeria-specific features: oil sector endogeneity, fiscal dominance, shallow financial markets, and dual labour markets. Three reform scenarios were simulated: trade liberalisation (tariff reduction of 10 percentage points), labour market flexibility enhancement (reducing hiring and firing costs), and financial market deregulation (removing interest rate administration). Bayesian estimation of model parameters used prior distributions from the Nigerian macroeconomic literature. Simulation results showed that trade liberalisation generated short-run output contraction (-1.4 percent) before generating long-run gains (+3.2 percent) through efficiency improvements and export expansion. Labour market flexibility showed faster transmission to output gains but significant distributional welfare losses for existing workers. Financial market deregulation showed the largest output gains in the long run (+4.1 percent) but significant short-run financial instability risks during the transition. Policy sequencing analysis confirmed that simultaneous implementation of all three reforms generated lower welfare than sequenced implementation. Expert review by 22 macroeconomists confirmed the study's original DSGE modelling contribution.

Keywords: DSGE model, structural reforms, Nigeria, macroeconomic simulation, Bayesian estimation