Trade openness on Nigeria economic Growth 1981-2015

The impact of trade openness on Nigeria economic growth within the sample period of 1981-2015 PDF. Download the full materials from chapter one to five with reference and abstract. Trade openness on Nigeria economic growth was tested using VECM and Granger causality test to estimate the relationship.

CHAPTER ONE

 INTROUDCTION

1.1       Background of the Study

The current period in the world economy is regarded as period of globalization and trade liberalization. In this period, one the crucial issues in development and international economics is to know whether trade openness indeed promotes growth. With globalization, two major trends are noticeable: first is the emergence of multinational firms with strong presence in different, strategically located markets; and secondly, convergence of consumer tastes for the most competitive products, irrespective of where they are made. In this context of the world as a “global village”, regional integration constitutes an effective means of not only improving the level of participation of countries in the sub-region in world trade, but also their integration into the borderless and interlinked global economy (NEEDS, 2005).

International trade has been a major driver of global growth and prosperity over the past decades. In fact, trade is widely accepted as a major engine of economic growth since global incomes grows as trade expands. Adewuyi (2000) in Afaha and Oluwatobi (2012) asserts that trade enables nations to sell their locally produced goods to other countries of the world. However; international trade cannot exist without the economic openness of the countries involved. Open economies have been able to harness the power of trade to boost competitiveness and productivity, helping improve living standards and sustain economic growth.

Before her political independence, Nigeria has been an active player on the field of foreign trade, initially with predominantly agrarian products, but presently dominated by petroleum products.  Prior to the discovery of oil in 1960s, the Nigerian government was able to execute investment projects through domestic savings and earnings from agricultural product exports and foreign aids.

However, the capacity of the economy to accumulate domestic savings to finance investment was limited. Since the discovery of oil in commercial quantity in Oloibiri in the present day Delta State, Nigeria has been an important player in world affairs, economically and otherwise, particularly being the 6th largest producer of crude oil in the Organization of Petroleum Exporting Countries (OPEC).

The economic crisis of the early 1980s in Nigeria elicited the argument that both the market and the government have failed in their basic responsibilities and that the panacea to the economic management problems would be achieved if there was greater reliance on market mechanisms in the conduct of economic activities. It was therefore no news that when the Structural Adjustment Programme (SAP) was introduced in July 1986, the main policy thrusts were: (i) the adoption of a realistic exchange rate, (ii) the deregulation and greater reliance on market forces, (iii) trade liberalization, (iv) the removal of subsidies on public sector goods and services, (v) privatization and rationalization of public enterprises and a general reduction of the government sector and (vi) strong demand management policies and credit policies (particularly tight monetary and credit policies). Trade liberalization has the potential to promote exports which plays a dynamic role in the growth and development process of a nation’s economy (Von Joachim, 2003; Mesike, 2006). Similarly, Maigels (1968), and Massel (1970) have also argued that the stunted growth of the Less Developed Countries (LDSs) was a consequence of export instability. Worthy of note is the fact that the best export performers on the International market scene are high-technology products, skill-intensive products and services. Gone are the days of national economic dependence on raw commodity exports. The bulk of the wealth of any nation now lies in value-added downstream product diversification.

In view of comparative advantage theory, openness can be beneficial in improving the economic performance of a country. Besides, openness will enhance the capital inflow to a country and thus will accelerate capital accumulation and transfer of technology which is considered the main components in strengthening economic growth as defined by endogenous growth theory.

In the opinion of those who are against liberalization, protection is believed to be able to enhance economic performance of a country.  To them, the lack of readiness of a country will aggravate its economic situation, due to its incapability to compete with the goods and services provided by the developed countries. Krugman, (I994) and Rodrik (1995) are economists with skeptical attitude towards the impact of openness to a country. The question regarding the benefits of openness to a country’s economy has been raised again since the economic crisis occurred in South American countries in 1980s and 1990s as well as the one that occurred in Asian countries in 1997/1998. Openness will cause a country to be more vulnerable to shocks coming from abroad as well as the incapability of competing with developed countries.

1.2 Statement of the Problem

Various factors have been adduced for Nigeria’s poor economic growth, the major problem has been the country’s continued and excessive reliance on the fortunes of the oil market and the failed attempt to achieve any meaningful economic diversification (Oshountogun, 1997), reflecting the effect of the so called ‘Dutch Disease. The need to correct the existing structural distortion and open up the Nigeria’s economy to the path of sustainable economic growth is therefore compelling.

Nigeria, being fully integrated into the global economic system, is a member and signatory to many multilateral and regional trade agreements. The policy response of such economic partnership agreements on trade policy has been to remove trade barriers, reduce tariffs and embark on outward oriented trade policies.

In line with the spirit of openness for instance, Nigeria has been liberalizing its economy; the trade and exchange rate policies of Nigeria were conclusively reviewed at the close of 1986 and Export duties were reduced and export prohibition was cancelled out; Import licensing for many imports were abolished. All of these measures resulted in uninhibited access of imported goods to the Nigerian market without obvious positive impact on domestic production in the industrial sector since the real sectors have had to function under conditions of unstable macroeconomic management, inadequate technology and credit facilities. These have proved to be an obstacle to strengthening the productive base, especially of agriculture and industry, in order to make them export-oriented. Thus, in spite of the openness of the economy and the implementation of trade liberalization measures, some macroeconomic indicators show poor performances of the economy generally. For instance, the economy has been characterized by infrastructure inadequacy, widespread corruption, inefficiency in the public sector and low degree of private sector participation in economic activities, low degree of savings accompanied by liquidity trap, capacity underutilization and low rate of capital formation.

With the present situation in the country, it becomes absolutely expedient to examine the relationship between trade openness on Nigeria economic growth.

1.3 Research Question

Having reviewed the related literatures and considering the structure of the Nigerian economy as related to trade openness on Nigeria economic growth, we may then ask the following questions.

  • Does trade openness have any significant impact on Nigeria’s economic growth?
  • Is there any long-run relationship between trade openness and Nigeria’s economic growth?

1.4       Objectives of the Study

The broad objective of this research work is to study, in its entirely, the relationship between trade openness on Nigeria economic growth. This broad objective can be subdivided into the following smaller objectives:

  • To examine the impact of trade openness on Nigeria economic growth .
  • To examine the long-run relationship between trade openness and Nigeria’s economic growth.

1.5       Statement of the Hypothesis

In view of the foregoing study, with respect to trade openness and output growth in Nigeria, the following null hypothesis will be tested:

Ho:      Trade openness does not have any significant impact on Nigeria’s economic growth.

Ho:      There is no long-run relationship between trade openness andNigeria’s economic growth.

1.6       Significance of the Study

The role of international trade in the developmental journey of an economy cannot be over emphasized, especially with the current trend of globalization. Nigeria. Being part of the global village, is not left out of this world development. This research work is carried out to study how trade openness has influenced the performance of the Nigeria economy through output growth in the presence of other internal and external shocks. It will help the government to see the effectiveness of trade liberalization policy on the economic growth of the nation over the years. This research work will further serve as a guide and provide insight for future research on this topic and related field for students who are willing to improve it. It will also educate the public on various government policies as related to trade issues.

 

1.7       Scope and Limitation of the Study

This research work on trade openness on Nigeria economic growth span through the period of 1981-2015, and is within the geographical zone of Nigeria. This research exercise, like every other research work, is really a rigorous one that consumes much time and energy especially in the area of data sourcing, data computation and modeling. Nevertheless, the researchers have properly organized the research so as to present dependable results which can aid effective policy making and implementation at least for the time being.

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