A Strategic Analysis of Nigeria’s Hedging Strategy in the Context of U.S.-China Rivalry

Amidst the escalating strategic competition between the United States and China, Nigeria, as Africa’s largest economy and a pivotal regional power, is navigating a complex geopolitical landscape that necessitates a sophisticated hedging strategy. The effective management of diplomatic and economic relationships with both global powers has become a central challenge for Nigeria’s pursuit of sustainable development and strategic autonomy. This paper provides critical insights into this dynamic by empirically evaluating the economic impacts of Nigeria’s engagement with both nations. To overcome the limitations of small sample sizes in time-series analysis, this study employs annual data from 1995 to 2024 within an Autoregressive Distributed Lag (ARDL) framework. This methodology allows for a robust examination of both the long-run equilibrium relationships and the short-run dynamic adjustments between Nigeria’s economic growth and its trade and investment ties with the U.S. and China, including the effects of major institutional partnerships. The empirical findings reveal a nuanced picture of Nigeria’s hedging strategy. The key results are: (1) A stable, long-run cointegrating relationship is confirmed between Nigeria’s economic growth, foreign direct investment (FDI), and its participation in major international initiatives. (2) In the long run, FDI emerges as a positive and statistically significant driver of economic growth, underscoring its foundational importance. (3) In the short run, the implementation of the U.S.-Nigeria Strategic Partnership and Action Plan (SPAP) is associated with a significant negative shock to economic growth, highlighting potential adjustment costs or adverse initial impacts of such alignments. (4) The Error Correction Model (ECM) identifies a valid, albeit slow, adjustment mechanism through which the economy corrects deviations from its long-run equilibrium path.