EFFECT OF TRADE AND FINANCE ON ECONOMIC GROWTH AND DEVELOPMENT IN NIGERIA .
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EFFECT OF TRADE AND FINANCE ON ECONOMIC GROWTH AND DEVELOPMENT IN NIGERIA .
Chapter one
1.0 Background of the Study
This study is primarily intended to provide an objective assessment of the influence of international trade, which began with grain products and is now dominated by petroleum products.
Since the commercial discovery of oil at Oloibiri in present-day Delta State, Nigeria has been an important actor in global affairs, both economically and otherwise, particularly as the sixth largest producer of crude oil in the Organisation of Petroleum Exporting Countries (OPEC).
Unfortunately, Nigerians’ natural blessings did not reflect in their general welfare, which was exacerbated by the collapse of the world oil “market as a result of glut in 1981.
Crude oil prices, for example, climbed significantly from 120.94 dollars per barrel in 1979 to $36.95 in 1980 and $40.00 in 1981 before falling to $29.00 in 1983 and a low of $14.85 in 1986. (Anyanwu, Oyefusi, and Oaikhenan 1997).
The exchange receipt, which had been $15.7 billion in 1981, had fallen to $5.2 billion. (Anyanwa et al).
The foregoing does not imply that Nigeria’s participation in international trade has resulted in no gains; rather, the gains have been normal, not in real terms, because a country with over 40% of its population living below the poverty line cannot be said to have prospered in real economic terms.
This study will determine if Nigeria’s economic underdevelopment may be linked to international commerce, or whether her relative economic prosperity, in terms of growth and development, can be related to her participation in global trade.
In other words, how has trade influenced Nigeria’s economic growth and development? This is the key question that this study aims to solve.
1.1 Statement of Research Problem
International trade’s relevance in the development process has piqued the interest of both development economists and policymakers. Imports and exports are important components of international trade, and the import of capital goods in particular is critical to economic development.
This is because imported capital goods have a direct impact on investment, which is the primary driver of economic growth. Economic refunds are expected to have an impact on imports as part of the aim to restore external balance.
However, unless policymakers understand what the primary components of imports are and how to assess them, such a policy decision may be detrimental to investment if domestic manufacturing is dependent on imports.
In Nigeria, some people support a protectionist and highly regulated economy, and have even criticised the previous Nigerian government for signing the World Trade Organisation (WTO) treaty, claiming that Nigeria was not adequately represented in the negotiations and should push for a fairer deal.
Regarding this statement, several people, particularly economists, campaigned for the introduction of the Structural Adjustment Programme (SAP) in 1986, which resulted in the deregulation of formerly regulated parts of the economy, allowing the country to profit from economic openness.
The primary goal of this research is to provide an objective viewpoint on the debate over the importance of international trade in a country’s advancement, specifically Nigeria’s economic growth.
Dissenting voices in the twenty-first century have eluded the possibility that trade may be negative in terms of working as an accelerator of economic growth and progress, or as a retrogressive factor in the trip to economic independence.
However, previous experience has demonstrated the power of commerce as a catalyst for economic improvement, particularly in terms of growth and development.
1.2 PURPOSE OF THE STUDY
International commerce has largely served as a “engine of growth” for the global economy. However, there have been many disserting voices in the twenty-first century stating that international commerce merely reinforces impoverished countries’ underdevelopment because industrialised centuries receive disproportionately high percentages of trade gains. This research focuses on the following objectives:
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i. Examine the impact of foreign commerce on Nigeria’s economic growth.
ii. Determine the extent to which trade policies have impacted Nigeria’s economic growth.
iii. To examine Nigeria’s trade policies over the years.
iv. Evaluate Nigeria’s trade and exchange reforms over the years.
v. Identify the factors impeding Nigeria’s international trade progress and provide solutions to address them.
1.3 RESEARCH QUESTIONS
The research questions that guide this study are as follows:
1. Does international commerce boost economic growth in Nigeria?
2. To what extent does the exchange rate influence Nigeria’s economic growth?
3. How does the country’s external reserves effect its economic growth?
4. What factors impede international trade in Nigeria?
1.4 Significance of the Study
This study uses an econometric approach to estimate the relationship between international trade components and Nigerian economic growth. The Ordinary Least Squares (OLS) technique is used to produce numerical estimations of coefficients in various equations.
The Ordinary Lease Square (OLS) approach is chosen because it has some advantageous properties: its computational procedure is very straightforward, and it is also a necessary component of most other estimation methodologies.
The estimation timeframe spans the last thirty-nine years, as the necessary data are available during this time. The data for this study were primarily gathered from secondary sources, specifically Central Bank of Nigeria (CBN) publications.
Model Specifications:
GDP = ao+a1 Imp + 92 Open + Ui.
GDP = Gross Domestic Product.
Imp = Volume of Import.
E open = Economic Openness (expressed as (import + export I GDP)
ao, a1, and a2 – parameters
Ui = Error word.
A PRIORI EXPECTATION
ao>O; a1 <0, a2 <0, or a2 >0
The constant is expected to be positive because, in addition to the components listed in the model, there are a number of other factors that influence GDP. According to macroeconomic theory, imports are a withdrawal from the economy and hence have a negative impact on the country’s economic activity.
The effect of economic openness is based on David Ricardo’s idea of comparative advantage, which promotes specialisation and the interchange of commodities and services among nations.
Economic specialisation could be good or negative, depending on the values of exports, imports, and GDP. If the value of exports and GDP exceeds the value of imports, economic openness will have a positive impact on economic growth, and vice versa.
MODEL II
GDP = bo + b IExp + b2 open + ui
Where gdp means gross domestic output.
Exp = volume of exports.
E open equals economic openness (expressed as import + export).
b0, bl, and b2 represent parameters.
UI = error phrase.
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