Trade Liberalization And Performance Of Nigeria Economy (2000 – 2019)
ABSTRACT
This study examined trade liberialization and performance of the Nigeria ecomomy from 2000 2009. The choice of this period is because it is within this period that Nigeria began the systematic process of deregulation of its economy and adopted more liberal trade and exchange rate regimes. The study was limited to the agricultural sector. Given the objectives of the study and it uniqueness ordinary least square (OLS) regression was found to be more appropriate. Justification for using OLS as method is because of it un-biased properties, efficiency and completeness. The study found that trade liberalization on an aggregate exact a significant positive impact on the Nigeria economy. It impact on an average is about 14 percent in increase on agriculture output. In the disaggregated model the study found significant impact differences. For example, the positive effects of trade liberalization on agricultural sub-sector such as crop production, livestock and forestry are slightly significant., but the impact of trade liberalization on fish production output is highly significant. It exact about 28 percent on the output of fish production. The study therefore concluded that trade liberalization has fairly significant positive impact on the Nigeria economy. The study proffered the following recommendations. First, Making deliberate efforts by government to increase small scale enterprises in Nigeria. This is because most enterprises in Nigeria are likely to agro-allied that may require raw materials from agriculture and also increase in per-capita productivity of the people through improved technological innovation.
CHAPTER ONE
1.1 BACKGROUND OF THE STUDY
Theorists of economics have over the years applied the principle of specialization and comparative advantage to the exchange of goods and services between countries in the form of theory of international trade. Economists since after the emergence of David Ricardo have also tried to provide answers to what determines which goods are traded and why some countries produce some goods while others produce different things. According to Todaro (1994), economists have sought the answer in terms of international differences in production costs and the prices of different products. The theory of comparative advantage holds that the promotion of free international trade both maximizes global output and allows countries to escape from the confines of their resource endowments. The factor endowment theory by Heckscher-Ohlin also took into consideration the effect of differences in factor supplies (natural resources, labour and capital) on the specialization in international production. These theories try to provide justifications for trade amongst countries of the world.
Trade liberalization implies the reduction or complete removal of trade barriers by a country or countries involved in foreign trade. There are so many forms of trade like; the transfer of technology, education flow and ideas sharing besides the trade in terms of commodities and countries impose various forms of restrictions or liberalization on these items depending on what such country wants to achieve. The restrictive trade policies were embraced by most developing economies in their early drive for economic growth and development but most of them relaxed the policy and moved towards the liberalization of trade as the world moved towards globalization. Very strong support exists in the literature of the argument that trade liberalization tends to stimulate economic growth and the existing literature support the positive relation between them (see Dornbush 1992; Krueger 1997). Empirical evidence from the Asian Tigers appeared to suggest that liberal trade policies are also growth-enhancing. For instance, Desai and Potter (2008) argued that growth performance of the socalled gang of four: Hong Kong, Taiwan, Korea and
Singapore were traced to high level of trade liberalization.
Nigeria over the years has opened her borders for trading with high imports and exports of goods and services. For instance, non-oil imports trade grew from a mean value of N36.55 billion; representing 96.8 percent of aggregate import into Nigeria during the period 1970-1979, to N118.36 billion; representing 93.4 percent of aggregate import trade over the period 1980-1989, N3.48 trillion for the period 1990-1999; representing 79.9 percent of total import demand and N19.33 trillion; representing 82.0 percent of aggregate imports demand over the period 20002008. Presently, value of Imports for goods and services in Nigeria stood at $85,354,940,000 as at 2014. In similar vein, Nigeria’s exports grew to about 9.9 percent year-on-year basis to N747760 million in last quarter of 2016. Considering the third quarter of the year, exports decreased by 1% from a year earlier to N2309 billion. The country exported goods mainly to India, the USA, France and Spain. Exports in Nigeria averaged N370305.54 million from 1981 until 2016, reaching an all-time high of N2648881.76 million in December of 2011 and a record low of N322.93million in February of 1983. Nigeria exports mostly primary products (oil and natural gas) and its accounts for over 90 percent of export trade. In 2014, 43% of total sales went to Europe; 29% to Asia; 13% to America and 12% to Africa. Some scholars held different opinion on Trade Liberalization.
Trade liberalisation has been a prominent component of policy advice to developing countries for the last two decades. Among the benefits claimed to spring from it, economic growth is probably the most important. And yet economists continue to argue about, and conduct research on the connection between them. A number of empirical studies have been carried out on the nexus between openness of trade regime and economic growth (World Bank, 1987). Several studies have shown that there is a positive relationship between openness and economic performance (see for example Matin, 1992). However, others have found no significant relationship (Adebiyi, 2006).
The conventional views that trade liberalisation is necessary and has positive effects for development and on the growth performance of the industrial sector constitute an increasingly controversial issue. According to Adenikinju and Olofin (2000), trade policy might affect industrial growth through several channels. First, a less protectionist trade regime increases scale efficiency by enlarging the domestic market which otherwise might be too small for the efficient production of goods that show increasing returns to scale. Second, a more liberal trade regime leads to increased competition from abroad, forcing domestic firms to adopt newer, more efficient technology to reduce inefficiency and waste. Third, it is argued that a freer economy eases foreign exchange constraints faced by most developing countries and hence enables a country to import needed raw materials and capital goods. Finally, a more open economy results in a faster rate of technological progress.
Rugumamu (1999) argued that trade liberalization will cripple economic activities of Nigerian economy if the door of the fragile economies are open to tough competition in the International market. The under developed and unequal exchange school also argued that because of the skewed nature of the international system, free trade tends to promote the exploitation of poor nations and the development of the centre at the expense of the periphery, possible because of unequal exchange and economic dependence (Inang, 1998,Teweldemedhin M, 2009.) However, it is arguable that trade liberalization benefit accrue only to the rich and developed countries to the detriment of poor underdeveloped ones (Keller, 2004, Wang, 2007). This study therefore examines the impact of trade liberalization on Nigeria agricultural output.
1.2 PROBLEM STATEMENT
Trade liberalization is proposed by the World Bank to correct the ongoing balance of payment deficit of the third world countries and as well promote trade. It was expected that a liberalized trade regime would stimulate agricultural output expansion and enhance a better performance of the economy. But the sector suffers severe problems due to persistent constraints inhibiting the performance of the sector such as poor growth in the sector, the productivity is low, uncompetitiveness in the sector, inefficiency and the poverty situation deepens. The deepening economic problems precipitated the adoption of structural Adjustment program (SAP) July 2000, of which trade liberalization was a major element. It was expected that introduction of SAP will restore agricultural sector to it production efficiency but evidence have shown that the inability of the sector can be attributed to structural rigidities in the sector since inception of SAP.
According to static and dynamic traditional trade theory ( Ricardian, 1886, Adam Smith 1776), which argued that free trade promotes efficiency and the more countries embrace open trade, the higher the growth rate and their national income increases and promoters of free trade (2009) International policy network ,Atlas Economic Research Foundation, comprising over 76 civil society organization from 48 countries launched an open letter calling on all government to eliminate trade barriers they observed that protectionism creates poverty while free trade encourage growth but statistical and empirical evidence reveals that there is a constant fluctuation in the AGDP growth rate (Akanji 2002, Meyer 2000,IMF , World Bank 2004).
The revealing statistic and empirical evidence (see for example Oyejide 2001, Adubi 1999, okunmadewa 1999, Awotide 2004, and Okoruwa 2006 ) suggest that despite the demonstrated and the potential gain from free trade by classical, the Nigeria Agricultural term of trade with other countries have not been too favourable, the domestic supply is very poor, the balance of payment is negative, export performance is very poor and negatively affected the level of food production, employment opportunities for the growing population and the provision of raw material for industrial sector and general food insecurity in Nigeria economy (see Akinyosoye 2000 , Lawal 2000).
Also, given Nigeria’s openness and increased integration into the global economy, the Nigerian economy still presents a typical picture of a less developed country in spite of the adoption of the policy of trade liberalization (Okorie 1998, Odusola 2004 and Yusuf 2000).
However, given the condition of the economy since 2000, and the episodes of trade liberalization and agricultural sector in Nigeria it is not clear if:
- Progressively that trade liberalization has generated growth in agricultural sector.
- What is the trend and pattern of agricultural sector in Nigeria?
- What is the impact of trade liberalization on the Nigeria economy
Against this background this study attempts to examine the impacts of trade liberalization on Nigeria agricultural Sector.
1.3 OBJECTIVE OF THE STUDY
The major objective of this study is to analyze the impact of trade liberalization on the performance of Nigeria economy. The specific objectives are
- To examine the trend and pattern of agricultural sector in Nigeria.
- To examine the impact of trade liberalization on the Nigeria economy.
- To recommend policy options to the government base on the findings.
1.4 HYPOTHESIS
This research work will test the hypotheses that trade liberalization (i.e. openness of the economy) has no impact on the Nigeria economy.
- Null hypothesis (H0): bi = 0 (Trade liberalization has no significant impact on the the Nigeria economy)
- Alternative hypothesis (H1): bi ≠ 0 (i.e. trade liberalization has significant impact on the Nigeria economy).
1.5 JUSTIFICATION OF THE STUDY
It is obvious that agricultural sector is the back bone of every economy. The agricultural sector plays a vital role toward the development of the Nigerian economy since 70% of people depended heavily on agriculture for their food consumption, life sustenance and employment. (Alabiet al 2004). As a result of these, agricultural sector does not only make goods produce available to people but also facilitate or foster growth in other sectors of the economy. Despite these immense contributions of agriculture towards economic growth, the sector has not been given adequate attention. The Nigerian agricultural sector is on the verge of collapse that will result in so many implications and consequences; this has called for greater reposition of agricultural sector. The focal point of this research work is to add value to the existing studies, the study provides empirical evidence on the impact of trade liberalization on the indicators of the key sectors of the economy with a particular interest on agriculture as well as the overall growth rate of the Nigeria economy. The result of this study would give the policy makers the insight and clear picture on how well the country has been in relation to globalization, determine the extent of further pursuit of trade liberalization and appropriately rework measures and policies to better make trade liberalization promote economic growth in Nigeria and to enhances of Nigeria gaining desired advantages of globalization. It will also help the government to see the effectiveness of trade liberalization policy on the economic growth of the nation over the years with respect to agricultural sector.
1.6 SCOPE AND THE LIMITATIONS OF THE STUDY
The study is carried out on trade liberalization and performance of the Nigeria economy. Due to the broad nature of this topic, the study is therefore limited to the agricultural sector. The sample of the study covers the period 2000 – 2019. This is because; it is within this period that Nigeria began the systematic process of deregulation of its economy and adopted more liberal trade and exchange rate regimes. The main limitation of the study was the difficulty in obtaining accurate data. The data used for the study are the publications of central bank of Nigeria (CBN) and which in most cases usually run conflict with data obtained from other source.
1.7 ORGANIZATION OF THE STUDY
This study is organized in five chapters. Chapter one consist of the general introduction of the study. Chapter two contains related theories and literatures .Chapter three covers the research methodology which contains the model specifications. The focus of Chapter four is presentation and analysis of the results based on econometric techniques that were adopted in the study. The last Chapter contains the summary, conclusion and recommendations base on the findings.
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