Analysis of Intra-industry Trade in Agricultural Products Between Nigeria and Partner Nations Within the Economic Community of West African States (1979-2008)
ABSTRACT
The basic tenet of the study was that intra-industry trade occurred when commodities of the same industry are simultaneously exported and imported by partner nations within the sub-region. The objectives of the study were to review Nigeria’s merchandise trade, assess the simultaneous exports and imports of agricultural products by partner nations, evaluate the share of intra-industry trade in agricultural products between Nigeria and the ECOWAS partner nations, and determine the effects of national and partners’ characteristics on the intra-industry trade within the sub-region. The study was carried out on the 15 countries within the Economic Community of West African States (ECOWAS). However, simultaneous exports and imports were only prevalent between Nigeria and four of these countries, namely Benin, Cote d’Ivoire, Ghana, and Togo. These countries have similarities in factor endowments, tastes and fashions of the partner nations. Exports and imports of agricultural products were collected from Federal Office of Statistics, now National Bureau of Statistics, publications. The data on national and partners’ characteristics such as GDP nominal, GNI per capita, size (population), foreign direct investment, value added by manufacturing, agriculture value added, household final consumption expenditure, and government final consumption expenditure were obtained from the United Nations Statistic Division as well as from ECOWAS Statistical Bulletin.
Descriptive statistics were used to achieve objectives (i) and (ii), while objective (iii) was achieved by employing the Grubel-Lloyd approach of measuring intra-industry trade index. Objective (iv) was achieved by adopting the binary logistic analytical technique. The results revealed that the mean value of Nigeria’s merchandise trade with partner nations ranged from ₦201.7, 731.96, 4,480.84, 35,166.6,92, 965.64, to ₦346,029.9 million between 1979 and 2008, respectively. These represent an annual average of 2.66 and 97.34 percents, respectively, of her total merchandise trade to the partners and the other parts of the world for the period 1979-2008. Nigeria’s mean export value of all agricultural commodities ranged from ₦4.35 million between 1979 to ₦2,109.45 million between 2004 and 2008, while the mean import values ranged from ₦3.43 million between 1979 and 1983 to ₦8,215.73 million between 2004 and 2008. These represent 1.72 and 4.0 percent, respectively of the exports, and 16.97 and 16.75 percent, respectively of the imports within the referred periods. The Grubel-Lloyd intra-industry trade indices were computed for agricultural commodity as a whole, live animals, chilled meat, coffee/mate, and product of milling industry, preparation of cereals, miscellaneous edible preparations and residue from food industry for the 30-year period, for each product. The value of the trade indices were either zero or one, and formed the dependent variable.
The key results from the binary logistic model were that the Grubel Lloyd intra-industry trade indices in agricultural commodities were influenced by national population and average partners’ final consumption expenditure, while trade indices in live animals were influenced by partners’ GDP, national agriculture value added, partners’ agriculture value added, and national GDP. Also, intra-industry trade indices in chilled meat were influenced by GNI per capita, national population, and national agriculture value added. Trade indices in Coffee and mate were influenced by national GDP, GNI per capita, and partners’ foreign direct investment, while intra-industry trade in the products of mill industry were determined by GNI per capita, partners’ FDI, and national household final consumption expenditure. In cereal preparations, intra-industry trade indices were influenced by partners’ GNI per capita and partners’ FDI, while trade indices in miscellaneous edible preparations were influenced by partners’ GNI per capita, and partners’ household final consumption expenditure. Trade indices in residue from food industry were influenced by partners’ GDP, partners’ population, national value added by manufacturing, national population, partners’ value added by manufacturing, and national agriculture value added.
It was recommended that ECOWAS nations should encourage its member states to continue to incorporate regional development policy into the national development agenda, sustain macroeconomic stability, further liberalize the economy, promote private sector activity and investment, and reduce vulnerability to exogenous shocks. Also, ECOWAS nations should continue the development of infrastructure and deepen institutional reforms, so as to realize maximum benefits from globalization through diversification of its agricultural production base and export commodities that have value addition. There is the need for ECOWAS policy makers to continue to make concerted efforts to ensure the effective implementation of the ECOWAS trade liberalization scheme and to stimulate the private sector to enhance value addition to the manufactured products of agricultural origin within the community. There is also the need to sustain horizontal differentiation (i.e. different varieties of a given good), and vertical differentiation (i.e. different qualities of a given variety) of agricultural products, given the level of competition the regional economies will be subjected to when the economic partnership agreement Economic Partnership Agreements between the ECOWAS and the European Union (EU) goes into operation.
CHAPTER ONE
1.0 INTRODUCTION
1.1 Background Information
Sequel to the call by the Organization for African Unity (OAU) heads of state summit on all its member states to form regional groupings for the purpose of accelerating their economic development, the treaty establishing ECOWAS was signed in Lagos Nigeria, in 1965. The overall objective of ECOWAS integration arrangement was to derive the benefits of co-operation which could be economic, political, and or social. Trade co-operation objective was to expand the volume of intra-community trade following the removal of both tariff and non-tariff barriers to trade on goods originating from member countries. However, intra-ECOWAS trade flows have remained very low. The trade liberalization process was expected to be implemented through such interventions like free international trade, common external tariff wall, consolidation or freezing of custom duties, and non-tariff barriers to intra-trade. Others include gradual phasing out of duties on industrial products from community projects over a period of 6-10 years at 10-16.6% annual rates of reduction depending on the classification of member states based on the level of development, location and importance of customs revenue.
In addition to the above measures, enabling institutions were established by the Community. These include the West African Clearing House (WACH) to handle most of the financial transactions under the ECOWAS trade liberalization scheme; the ECOWAS bank (ECOBANK), a commercial bank with branches in at least 5 capitals within the Community and the capacity to operate on convertible currencies; ECOWAS Monetary Co-operation Programmme designed to improve and strengthen the WACH mechanism in facilitating increased intra-Community trade and payments transactions. In the short-term, this would be achieved through greater use of national currencies. The medium-long-term objectives are to issue a common convertible currency and to create a single monetary zone (ECOWAS, 1994). This body has now created the West African Unit of Account (WAUA) to facilitate payment and currency convertibility within the Community; The Fund for Co-operation, Compensation and Development to mobilize financial resources for the implementation of Community projects and to supervise compensation to member states for approved losses of revenue sustained in pursuit of trade liberalization; an inter-state Road Transit of Goods Regime for the purpose of facilitating the movement of goods by road (ECOWAS, 1994).
In export and import list of the United Nations Harmonized System (HS) classification scheme codes, sections and chapter headings, there are 22 product sections; four among which deal with agricultural products NBS, (2008). These include, live animals and animal products of HS code 01, chapters 1-5; the vegetable products category consisting of HS code 02, chapters 6-14; the Animal and Vegetable fats and oils and other cleavage products that come under HS code 03, chapter 15; the prepared food stuff category comprising HS code 04, chapters 16-24 (NBS, 2008; ECOWAS, 2008). So, if Nigeria exported agricultural products to the United Kingdom and imported high-tech goods from them, inter-industry trade has occurred, but if Nigeria exported and imported vegetable products from Ghana, the trade is said to be intra-industry because, all vegetable products are classified into the same product section by the United Nations Harmonized System of Trade Classification. It is hypothesized that in a situation where the pattern of trade reflects comparative advantages based on dissimilarities of economic structures, the scope for intra-trade is limited in relation to that in which there is also trade based on similarities of factor endowments. Put differently, the scope and rate of inter-industry trade expansion are augmented by intra-industry trade which reflects a similarity of economic structures. Both exist side by side as major components of international trade. The study is therefore concerned with horizontal intra-industry trade in agricultural product subsections i.e. simultaneous exports and imports of different varieties of agricultural products.
1.2 Problem Statement
The promotion of intra-trade was predicated on the danger posed by the protectionist measures adopted by the developed countries. Indeed, in spite of the various trade negotiations, particularly under the auspices of the General Agreement on Tariff and Trade, the European Union (the largest importer of West African products) maintained an average tariff of 9.8 per cent on imports from developing countries up to the Uruguay Round of negotiations in 1994. To worsen matters, developing countries in whose markets exports of manufactures from other developing countries were likely to be initially competitive also impose restrictions on certain types of manufactures and primary products (Amsden, 1976). For instance, the tariff rates on imports of primary and manufactured products adopted by a selected number of developing countries respectively ranged from 30.2 and 36.3 per cents in 1984-88 to 24.7 and 27.3 per cents in 1991-94. It was the scenario that necessitated the formation and proliferation of trade co-operation agreements among developing countries to take advantage of their enlarged markets. In the same spirit, ECOWAS was formed in 1975 to create an environment conducive to rapid economic development through co-operation in trade, industry, monetary, financial as well as socio-economic matters.
However, intra-ECOWAS trade flows have remained very low to date Foroutan and Pritchett, Ogunkola, (1993; 1995; 1998). Explanations for low performance include the inability and/or the unwillingness of member states to carry out trade liberalization measures and limited potential for trade expansion. Though, Stone (1997) had maintained that the determinants of intra-industry trade are industrial based and regional characteristics, few studies seem to sought to determine the effects of national and partner characteristics such as nominal GDP, per capita GNI, size (population), household and government final consumption expenditures, foreign direct investment (FDI) among other factors, on intra-industry trade in agricultural products within the sub region. Also Grubel-Lloyd (1975) evaluated index of intra-industry trade, but few studies seek to predict the effects of national and partners’ characteristics on intra-industry trade indices of agricultural products within the sub region. Which national and or partner characteristics are responsible for the intra-industry trade indices in agricultural products and subsections? In which agricultural products are there simultaneous exports and imports? What are the shares of intra-industry trade in total agricultural trade? What are the effects of national and partner characteristics on intra-industry trade indices? These gaps were what the study aimed at filling.
1.3 Objectives of the Study
The broad objective of this study was to empirically assess intra-industry trade in agricultural products within the ECOWAS sub-region. The specific objectives were to:-
(i) review Nigeria’s merchandise trade.
(ii) assess the simultaneous exports and imports of agricultural products by partner nations within ECOWAS;
(iii) evaluate the share of intra-industry trade in the different agricultural products trade among the partner nations within the sub-region;
(iv) determine the effects of national and partners’ characteristics on the intra-industry trade, and
(v) draw relevant trade policy recommendations.
1.4 Hypotheses of the Study
The following null hypotheses were tested:
(i) national and partners’ characteristics do not significantly influence intra-industry trade indices in the agricultural products; and
(ii) national and Partners’ characteristics do not significantly influence intra-industry trade indices in agricultural product subsections.
1.5 Justification for the Study
This study explored the existence of intra-industry trade in agricultural products within the ECOWAS sub-region. It was geared towards testing empirically the Grubel-Lloyd indices of trade against the major Nigerian (national) and partner nations’ conventional characteristic determinants of intra-industry trade. The study was an exploratory step in ascertaining the extent, indices and factors influencing intra-industry trade in agricultural products within the ECOWAS. This would form a formidable guide to ECOWAS members and national governments on the formulation and development of appropriate policies, particularly as it concerns agricultural products trade. More so, the ongoing debate on Economic Partnership Agreement between ECOWAS and the EU requires the identification of traded products within the sub-region, whose market should be sustained to expand the intra-community trade and deepen the region’s integration. This would aid in proffering policy measures aimed at fostering intra-industry trade in the agricultural product in general and product sub-sections in particular. The findings of this study would favor ministries of agriculture, consultants, ECOWAS secretariat on the products to be regarded as “sensitive” products, whose close substitute from the EU should not be granted free import tariffs, when the economic partnership agreements between ECOWAS and the EU goes into effect. This study no doubt would encourage other students to develop interest and insight in intra-industry trade theory and engage in further studies in the area.
The significance of ECOWAS member nations exporting to, and importing from others in the light of growing need for regional integration and at a stage when most ECOWAS countries are opening up their markets under the pressure of International Monetary Fund (IMF) and World Bank (WB) cannot be over emphasized. Supposedly, in Economic Community of West African States, there are many agro-industries producing different varieties of live animals and animal products; vegetable products; animal and vegetable fats and oils; and prepared foodstuffs in the agricultural sub-sectors of the economies of partner nations, thereby making it a reasonably concentrated industry with the features that are prerequisites for intra-industry trade to occur. More so, producing a greater variety of goods increases the general knowledge about its technology and implies smaller costs of knowledge accumulation. For instance, Nigeria’s exportation and importation of products of prepared foodstuffs, among others from Benin, Cote d’Ivoire, Ghana, Togo, etc; will likely lead to improvements in these countries’ products. Just as US importation of Japanese car and trucks has led to improvements in US car and truck manufacturing. Therefore, a study of the existence of intra-industry trade in agricultural products among ECOWAS trading partners is worthwhile.
- Delimitations and Limitations of the Study
The study carried out was delimited to the period 1979-2008. The coverage of the trades were limited to Nigeria’s partner nations based on National Bureau of Statistics foreign trade data, of the major suppliers of Nigeria’s imports which included Benin, Cote d’Ivoire, Togo, and Ghana; and the major buyers of her exports, Ghana and Cote d’Ivoire among others. However, coverage of agricultural products and product subsections was not only delimited to where they were recorded, rather instances of simultaneous exports and imports formed the major consideration among the recorded trades assessed. Limited information on unrecorded trade flows made official statistics on the identified products inaccurate. Financial constraints were a major limitation. However, these constraints were surmounted through assessment of trade values recorded by the National Bureau of Statistics (NBS), and financial assistance from relations, friends, and informal loans.
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References
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