Trade liberalization and Nigeria’s economic performance (2000 – 2019)
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ABSTRACT
This study investigated trade liberalization and Nigeria’s economic performance from 2000 to 2009. This period was chosen because it was around this time that Nigeria began the systematic deregulation of its economy and implemented more liberal trade and exchange rate regimes. The research was restricted to the agricultural industry. Given the study’s objectives and its singularity, ordinary least square (OLS) regression was deemed more acceptable. OLS is justified as a method due to its objectivity, effectiveness, and comprehensiveness. The study discovered that trade liberalization had a strong positive effect on Nigeria’s economy. It results in a 14 percent average increase in agricultural output. In the disaggregated model, the study discovered considerable disparities in impact. For instance, the beneficial benefits of trade liberalization on agricultural subsectors such as crop production, cattle, and forestry are marginally significant, whereas the effect of trade liberalization on the output of fish production is extremely significant. It accounts for around 28 percent of fish production output. Therefore, the study indicated that trade liberalization has moderately favorable effects on the Nigerian economy. The study provided the following suggestions. First, government initiatives to expand the number of small businesses in Nigeria. This is due to the fact that the majority of businesses in Nigeria are expected to be agro-allied, necessitating raw materials from agriculture, as well as an improvement in the per-capita productivity of the population through technological innovation.
FIRST PART
1.1 INTRODUCTION TO THE STUDY
Over the years, economists have applied the notion of specialization and comparative advantage to the worldwide exchange of commodities and services in the shape of the theory of international trade. Since the rise of David Ricardo, economists have also sought to explain what decides which items are sold and why certain countries produce some goods while others produce others. According to Todaro (1994), economists have sought an explanation based on worldwide disparities in production costs and product prices. According to the idea of comparative advantage, the promotion of free international commerce maximizes global output and enables nations to break free of their resource endowments. Heckscher-factor Ohlin’s endowment theory also considered the impact of disparities in factor supplies (natural resources, labor, and capital) on international production specialization. These theories attempt to establish arguments for international commerce.
Trade liberalization indicates the decrease or elimination of trade barriers by a nation or nations engaged in international trade. There are several forms of commerce, such as the transfer of technology, the flow of education, and the exchange of ideas, in addition to commodity trade, and countries place varying limitations or liberalization on these goods based on their objectives. In their early pursuit of economic growth and development, the majority of emerging economies embraced restrictive trade policies. However, as the world shifted toward globalization, the majority of developing economies shifted toward trade liberalization. Existing literature strongly supports the premise that trade liberalization tends to increase economic growth, as well as the positive relationship between the two (see Dornbush 1992; Krueger 1997). The empirical evidence from the Asian Tigers appeared to indicate that liberal trade policies also promote economic growth. For example, Desai and Potter (2008) suggested that the growth performance of the so-called ‘gang of four’ – Hong Kong, Taiwan, Korea and Singapore – was exceptional.
The economic achievements of Singapore can be attributed to its high level of trade liberalization.
Over the years, Nigeria has opened her borders to increased imports and exports of commodities and services. Non-oil imports trade increased from a mean value of N36.55 billion, representing 96.8 percent of total imports into Nigeria from 1970 to 1979, to N118.36 billion, representing 93.4 percent of total import trade from 1980 to 1989, N3.48 trillion, representing 79.9 percent of total import demand from 1990 to 1999, and N19.33 trillion, representing 82.0 percent of total import demand from 2000 to 2008. As of 2014, the value of Nigeria’s imports of goods and services was $85,354,940,000. In a same manner, Nigeria’s exports increased by approximately 9.9 percent year-over-year to N7,47,760 million in the fourth quarter of 2016. In the third quarter of the year, exports declined by 1% compared to the same period the previous year, to N2.309 billion. The country’s major export markets were India, the United States, France, and Spain. From 1981 to 2016, exports in Nigeria averaged N370305.54 million, hitting a peak of N2648881.76 million in December 2011 and a low of N322.93 million in February 1983. Nigeria exports primarily primary goods (oil and natural gas) and accounts for more than ninety percent of the world’s export trade. In 2014, 43% of overall sales were made in Europe, 29% in Asia, 13% in the United States, and 12% in Africa. Various researchers have various views regarding Trade Liberalization.
Over the past two decades, trade liberalization has been a key component of policy advice to developing nations. Among the purported benefits, economic expansion is likely the most significant. And yet, economists continue to debate and perform research on their relationship. Numerous empirical research have examined the relationship between trade regime openness and economic growth (World Bank, 1987). Multiple research have demonstrated a correlation between openness and economic performance (see for example Matin, 1992). Others, however, have found no substantial correlation (Adebiyi, 2006).
The traditional notion that trade liberalization is necessary and has good impacts on development and the growth performance of the industrial sector is a contentious issue that is growing in prominence. According to Adenikinju and Olofin (2000), the impact of trade policy on industrial growth may occur through multiple avenues. First, a less protectionist trade policy improves scale efficiency by expanding the domestic market, which would otherwise be too small for the efficient production of goods with increasing returns to scale. Second, a more free trade environment increases foreign competition, compelling domestic companies to embrace newer, more efficient technologies to decrease inefficiency and waste. Thirdly, it is stated that a freer economy alleviates the foreign exchange limits experienced by the majority of developing nations, allowing a country to acquire necessary raw materials and capital products. Lastly, a more open economy accelerates the rate of technical advancement.
Rugumamu (1999) stated that trade liberalization will stifle the economic activities of the Nigerian economy if the fragile economies are exposed to fierce international competition. The underdeveloped and unequal exchange school also argued that due to the asymmetrical nature of the international system, free trade tends to promote the exploitation of poor nations and the development of the center at the expense of the periphery, which is possible due to economic dependence and unequal exchange (Inang, 1998,Teweldemedhin M, 2009.) However, it may be argued that trade liberalization benefits primarily wealthy, industrialized nations to the detriment of poor, developing nations (Keller, 2004, Wang, 2007). This study investigates the effect of trade liberalization on agricultural output in Nigeria.
1.2 PROBLEM STATEMENT
The World Bank proposes trade liberalization to rectify the chronic balance of payment deficit of third world nations and to stimulate commerce. It was anticipated that a liberalized trade environment would drive agricultural output growth and boost economic performance. However, the sector is plagued by recurrent obstacles that impede its performance, such as sluggish development, low productivity, uncompetitiveness, inefficiency, and worsening poverty. The worsening economic situation necessitated the approval of the structural Adjustment program (SAP) in July of 2000, of which trade liberalization was a significant component. It was anticipated that the adoption of SAP would restore the agriculture sector’s production efficiency, however research suggests that the sector’s incapacity can be ascribed to structural rigidities in the sector since the introduction 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 their growth rate and national income, promoters of free trade (2009) International policy network,Atlas Economic Research Foundation, consisting of over 76 civil society organizations from 48 countries, issued an open letter urging all governments to eliminate trade barriers (Akanji 2002, Meyer 2000,IMF , World Bank 2004).
The revealing statistics and empirical evidence (for instance, see Oyejide 2001, Adubi 1999, okunmadewa 2004, Awotide 2004, and Okoruwa 2006) suggest that despite the demonstrated and potential gain from free trade by classical, the Nigeria Agricultural terms of trade with other countries have not been too favorable, the domestic supply is very poor, the balance of payment is negative, export performance is very poor, and has negatively affected the level of food prices (see Akinyosoye 2000 , Lawal 2000).
In addition, given Nigeria’s openness and growing integration into the global economy, despite the adoption of a trade liberalization strategy, the Nigerian economy nevertheless resembles that of a less developed nation (Okorie 1998, Odusola 2004 and Yusuf 2000).
Given the state of the economy since 2000 and the trade liberalization and agriculture sector developments in Nigeria, it is unclear whether:
The agriculture sector has grown progressively as a result of trade liberalization.
What is the trend and pattern of Nigeria’s agricultural sector?
How does trade liberalization affect the Nigerian economy?
In light of this, this paper examines the effects of trade liberalization on Nigeria’s agriculture sector.
1.3 PURPOSE OF THE STUDY
This study’s primary purpose is to assess the effect of trade liberalization on Nigeria’s economic performance. The particular aims are
Examine the trend and pattern of Nigeria’s agricultural sector.
Examine the effects of trade liberalization on the economy of Nigeria.
Make policy recommendations to the government based on the findings.
1.4 HYPOTHESIS
This study will examine the hypothesis that trade liberalization (i.e., economic openness) has no effect on the Nigerian economy.
The null hypothesis (H0) is that bi = 0. (Trade liberalization has no significant impact on the the Nigeria economy)
Alternative hypothesis (H1): bi is greater than zero (i.e. trade liberalization has significant impact on the Nigeria economy).
1.5 RATIONALE FOR THE STUDY
Clearly, the agriculture sector is the foundation of every economy. The agricultural sector plays a crucial part in the growth of the Nigerian economy, as 70% of the population relies significantly on it for food consumption, life support, and employment. (Alabiet al 2004). As a result, the agriculture sector not only makes items available to consumers, but also facilitates or promotes the expansion of other economic sectors. Despite agriculture’s significant contributions to economic growth, the industry has not received sufficient attention. This has necessitated a repositioning of the agricultural sector. The Nigerian agricultural sector is on the edge of collapse, which will have numerous repercussions and effects. This study provides empirical information on the influence of trade liberalization on the indicators of the important sectors of the Nigerian economy, with a special focus on agriculture, as well as the overall economic growth rate. This study would provide policymakers with insight and a clear picture of the country’s performance in relation to globalization, determine the extent of further pursuit of trade liberalization, and rework measures and policies to make trade liberalization promote economic growth in Nigeria and increase the likelihood of Nigeria gaining the desired benefits of globalization. It will also assist the government in determining the impact of trade liberalization policy on the agricultural sector’s contribution to the nation’s economic growth over time.
1.6 SCOPE AND LIMITATIONS OF THE EXAMINATION
The study is conducted on trade liberalization and Nigeria’s economic performance. Due to the expansive size of this topic, the scope of this study is restricted to the agriculture industry. The study sample spans the years 2000 to 2019. This is due to the fact that it was during this time frame that Nigeria began the systematic deregulation of its economy and embraced more open trade and exchange rate regimes. The primary constraint of the study was the difficulty of collecting precise data. The data used for the study are the publications of the Central Bank of Nigeria (CBN), which disagree with data from other sources in the majority of situations.
1.7 STRUCTURE OF THE STUDY
This investigation is divided into five chapters. The first chapter is a general introduction to the study. The second chapter comprises relevant theories and literatures. The third chapter discusses the research technique, which includes the model specifications. The fourth chapter focuses on the presentation and interpretation of the study’s econometric techniques-derived outcomes. Based on the findings, the final chapter offers a summary, conclusion, and recommendations.
Trade liberalization and Nigeria’s economic performance (2000 – 2019)
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