Impact of Trade Liberalization on Economic Growth of Nigeria

The impact of trade liberalization on economic growth of Nigeria, download the full project work with reference and abstract. impact of trade liberalization and Nigeria economy will covers policies on trade and how it affect economic growth of a nation.



1.1 Background to the Study

Historically, trade has acted as an important engine of growth for countries at different stages of development, not only by contributing to a more efficient allocation of resources within countries, but also by transmitting growth from one part of the world to another. Over the past several decades, the economies of the world have become increasingly linked, through expanded trade. International trade has often played a central role in the historical experience of the developing world.  Because of the economic impact that trade has always had on civilizations, governments often become involved in trade with the goal of producing a particular economic outcome for their countries. There are, however, static and dynamic gains from trade between countries, but there is nothing in the theory of trade that says that the gains are equitably distributed.

Trade liberalization started in 1947, after the 2nd World war, with the inception of the General Agreement on Tariffs and Trade (GATT). The GATT was negotiated in 1947 by 23 countries of which 12 are industrialized countries and 11, developing countries. The main focal point of the GATT was to lower trade barriers. GATT was later replaced by the WTO (World Trade Organization) in 1994.

Basically, the main purpose of trade liberalization is to allow countries to export those goods and services that they can produce efficiently, and import the goods and services that they produce inefficiently. The above statement refers to the theory of comparative advantage. Traditional explanations of trade as “the engine of growth” and the impact of trade on economic development are rooted in the principles of comparative advantage.

Essentially, the theory of comparative advantage arose from nineteenth century free trade models associated with David Ricardo and John Stuart Mill, which were later modified by trade theories embodied in the factor proportions theory of Hecksher – Ohlin (1933), Stolper-Samuelson (1941) and Rybzsnski (1955) effects.

As a matter of fact, Nigeria has been romancing with the idea of ‘openness is good for growth.’ Key government officials, as expected, see trade as ‘an indispensable engine for economic growth’. Given the predictions of trade theory and observations, the important point to make in this introduction is that the issue for developing countries in general, and Nigeria in particular, is not so much whether to trade, but what to trade, and the terms on which trade should take place with the developed countries of the world (or between themselves). Another question to be asked is; at what level of growth/development should a country adopt trade liberalization to ensure sustainable economic development? The focus of this work shall therefore be on determining if a relationship exists between trade liberalization and economic growth, the nature of that relationship and the impact of trade liberalization on economic growth in Nigeria.

Still on ,,,, impact of trade liberalization on Nigeria economic growth 1981-2016.

The Nigerian main trade policy instrument shifted remarkably away from tariffs to quantitative import restrictions, particularly import prohibition and import licensing from the mid 1970’s. This gave rise to the Nigerian customs legislature establishing an import prohibition list for trade item and an absolute import prohibition list for non trade items, Oyejide (1975). The customs legislation empowered the government to modify this list at its discretion by adding or subtracting items through customs and excise notices and government announcement. And over the years there have been several modifications on this list targeted to protect existing domestic industries and reducing the country’s dependence on imports.

There are three international organisations that have expressed views on Nigerian’s import prohibition policy, these are the World Trade Organisation, the World Bank and the International Monetary Funds. They have advisory role with respect to trade and other policy matters in Nigeria and had advised a more liberal trade policy regime in Nigeria which was initiated in the 1980s. The World Bank and the International Monetary Funds did support this via its lending programme Prior to the introduction of the structural administration programme (SAP) in 1986 in Nigeria, imports were subjected to quantitative controls implemented through a combination of ban on agricultural and some manufactured goods and a licensing system. But under the SAP, import and export licensing was abolished, price and distribution control on agricultural exports was removed and the prohibited list of imports was reduced.

This issues of whether trade liberalisation would lead to economic growth has become a debate for both pro-traders and protectionists. This has led to a growing change in the trend of world trade. Mostly, African countries have become more careful in embarking in liberalisation of policies.

1.2 Statement of the Problem

The research problem can be stated thus: rising imports may generate a decline in employment if it leads to a decrease in the demand for the country’s domestic output. In addition, employment will fall if rising import rate eliminates low productivity firms through import competition. However, one can expect a positive employment effect if a significant portion of the imports constitute labour-intensive inputs. Conversely, it is also expected that countries which have rising export rate might witness a rapid increase in employment implying that there may be a positive correlation between employment and export rate. A negative relationship can as well be obtained under the following conditions (Noko, 2016).

First, Nigerian is an oil rich country and might be affected by the  resource curse or Dutch disease

phenomenon [OECD (1992), Olomola (1995), Hausman and Rigobon (2002)], which might make the relationship between exports and employment to be negative. Intensive exportation of her oil resources might make the real exchange to appreciate strongly, which in turn might make exports to be expensive, unprofitable and therefore globally uncompetitive. This might lead to decline in traditional exports which consequently lead to declining employment in these sectors. Also, one can obtain a negative relationship if the increase in exports is due to increased out of the country border’s reprocessing which leads to a declining domestic production.

International trade is expected to be beneficial to participants (in form of lower prices, variety of products etc), to firms and businesses (as studies have it that firms exposed to the world’s best practices demonstrate higher productivity through many channels, such as learning from these best practices, and also creating new products and processes in response to this exposure) but  in the case of Nigeria, it has left our industries in a state of comma, as domestic infant industries are destroyed by competition with already established international firms, without bringing about a creation of new ones. Hence, all these in addition to both fiscal and monetary indiscipline, have made the reverse the case for these years.

Furthermore, the problem of hoarding and secrecy abounds. The major aim of trade liberalization is to open up economies so that countries can learn from themselves and improve production and output. However, most developed countries are not truly willing to expose their methods of production and technologies simply because of the fear of domination. Also, majority of the countries engaging in trade hoard important commodities which are needed in Nigeria; yet they get every single thing they need from Nigeria. This therefore results in a situation where trade is liberalized only in words but not in action. The developing countries, specifically Nigeria, learn close to nothing when it comes to improved ways of doing things. Instead, we are used as a dumping ground by other countries. This deplorable situation obviously has an adverse effect on the economic growth of Nigeria. These and many more challenges are the problems of trade liberalization in Nigeria and until they are tackled properly, trade liberalization may not bolster economic growth.

1.3 Research Questions

Given the aforementioned problem prevalent in external borrowing, hence this research work on trade liberalization and Nigeria economic growth tries to answer the following specific research questions:

  1. To what extent does trade liberalization on economic growth of Nigeria?
  2. Is there any observed long-run relationship between trade liberalization on Nigeria economic growth?

1.4 Objectives of the Study

The main objective of the study is to investigate the relationship between  trade liberalization on Nigeria economic growth. The specific objectives of study are to:

(i) Empirically investigate the impact of  trade liberalization on Nigeria economic growth.

(ii) Examine the long-run relationship between trade liberalization and Nigeria’s economic growth.

1.5 Statement of Hypothesis

In order to have a framework for the study and also to answer the research questions above, the following hypotheses were formulated:

  1. H0: Trade liberalization has no significant impact on Nigeria’s economic growth.
  2. H0: There is no long-run relationship between trade liberalization and economic growth of Nigeria.

1.6 Significance of the Study

This study will be significant to the following stakeholders:

Researchers: It is expected that this study would contribute to the advancement of the existing literature on trade and economic growth especially in the Nigerian case. Thus, forming a veritable source of reference for researchers.

Government: It is also expected that the empirical results and recommendations of this work would be useful to policy makers as it would help in adopting suitable trade policies that will promote trade in Nigeria.

Investors: Investors will benefit immensely from this research work as it will expose them to the benefits and harmful effects of trade liberalization and help them know how to invest their funds wisely.

Still on ,,,, impact of trade liberalization on Nigeria economic growth 1981-2016.

General public: The general public would find this study very useful because it will serve as a spring board for continuation of research as well as for detailed information as regards trade activities in Nigeria.

And finally, the research will serve as a reference guide to other researchers who will find the research helpful in conducting further research on the topics.

1.7 Scope and Limitation of the Study

The study seeks to analyze  trade liberalization on Nigeria economic growth. In order to fully capture its effect on the economy, a thorough empirical investigation will be conducted with data covering a period of 37 years i.e. 1981-2016. This period was chosen to cover the period after the oil collapse and also the post debt-relief era. This study is limited by the following factors; Paucity of Materials: Materials for the study were not adequate and consistent thereby resulting to extra effort by the researcher to validate the data.

Inaccessibility of Data: Difficulty in accessing data for the study was yet another limitation. This had its own toll on the research work because it limited the data that was used for the study.

Financial Constraint: Lack of adequate funds on the part of the researcher constituted another problem. However, amidst all these enumerated constraint faced by the researcher, effort was adequately made by the researcher to ensure the reliability of the result by subjecting the research to many advance econometric test to fish out any possible spuriousity of result among others.

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