TRADE LIBERALIZATION AND PERFORMANCE OF NIGERIA ECONOMY (2000 – 2019)
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TRADE LIBERALIZATION AND PERFORMANCE OF NIGERIA ECONOMY (2000 – 2019)
Chapter one
1.1 Background of the Study
Economic theorists have long applied the notion of specialisation and comparative advantage to the exchange of goods and services across countries, resulting in international trade theory.
Since the rise of David Ricardo, economists have attempted to answer questions about what decides which items are sold and why certain countries produce certain goods while others create different things.
According to Todaro (1994), economists have attempted an answer in terms of global variations in production costs and product prices. According to the idea of comparative advantage, promoting open international trade increases global output while also allowing countries to escape the constraints of their resource endowments.
Heckscher-Ohlin’s factor endowment theory investigated the effect of disparities in factor supplies (natural resources, labour, and capital) on international production specialisation. These theories attempt to justify international trade.
Trade liberalisation refers to the decrease or elimination of trade barriers by a country or countries engaged in international trade. There are several forms of commerce, including the transfer of technology, the flow of knowledge
and the exchange of ideas, in addition to commodity trade, and countries apply varying forms of limitations or liberalisation on these goods depending on what they wish to achieve.
Most emerging economies had restrictive trade policies in their early efforts to spur economic growth and development, but as the globe became more globalised, most softened their rules and moved towards trade liberalisation.
The concept that trade liberalisation tends to increase economic growth is well supported in the research, and the existing literature supports the positive relationship between them (see Dornbush 1992; Krueger 1997).
Empirical research from the Asian Tigers appeared to show that open trade policies promote growth. For example, Desai and Potter (2008) suggested that the development performance of the so-called gang of four: Hong Kong, Taiwan, Korea,
Singapore was linked to a high level of trade liberalisation.
Nigeria has opened its borders to trade over the years, with a significant volume of commodities and services imported and exported. For example, non-oil import trade increased from a mean value of N36.55 billion, representing 96.8 percent of aggregate imports into Nigeria from 1970 to 1979, to N118.36 billion
representing 93.4 percent of aggregate import trade from 1980 to 1989, N3.48 trillion from 1990 to 1999, representing 79.9 percent of total import demand, and N19.33 trillion, representing 82.0 percent of aggregate 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 similar vein, Nigeria’s exports increased by 9.9 percent year on year to N747760 million in the fourth quarter of 2016. Exports in the third quarter of the year fell by 1% from the previous year to N2309 billion.
The country mostly exported items to India, the United States, France, and Spain. Exports in Nigeria averaged N370305.54 million between 1981 and 2016, with an all-time high of N2648881.76 million in December 2011 and a record low of N322.93 million in February 1983.
Nigeria exports largely primary products (oil and natural gas), accounting for more than 90% of export trade. In 2014, Europe accounted for 43% of overall sales, followed by Asia (29%), America (13%), and Africa (12%), respectively. Some experts had differing views on trade liberalisation.
For the past two decades, trade liberalisation has been a key component of policy guidance to developing countries. Economic growth is likely to be the most significant of the benefits stated. Nonetheless, economists continue to debate and investigate the relationship between the two.
Numerous empirical research have been conducted on the relationship between trade regime openness and economic growth (World Bank, 1987). Several research have found a beneficial association between openness and economic performance (for example, Matin, 1992). Others have discovered no substantial link (Adebiyi, 2006).
The traditional idea that trade liberalisation is necessary and beneficial to development and industrial sector growth performance is becoming increasingly contentious. According to Adenikinju and Olofin (2000), trade policy can influence industrial growth through a variety of mechanisms.
First, a less protectionist trade policy improves scale efficiency by expanding the domestic market, which would otherwise be insufficient for the efficient production of commodities with increasing returns to scale. Second, a more free trade environment increases international rivalry, forcing domestic enterprises to embrace newer, more efficient technologies to decrease inefficiency and waste.
Third, it is maintained that a freer economy reduces the foreign exchange limits that most developing countries experience, allowing them to acquire necessary raw materials and capital products. Finally, an open economy leads to faster technical growth.
Rugumamu (1999) suggested that trade liberalisation will destroy Nigeria’s economic activity if unstable economies are exposed to strong competition in the international market.
The underdeveloped and unequal exchange school also argued that, due to 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, which is made possible by unequal exchange and economic dependence (Inang, 1998; Teweldemedhin M, 2009).
However, it is argued that trade liberalisation benefits primarily rich and developed countries at the expense of impoverished underdeveloped ones (Keller, 2004, Wang, 2007). This study investigates the influence of trade liberalisation on Nigerian agricultural output.
1.2 STATEMENT OF THE PROBLEM
The World Bank proposes trade liberalisation to address third-world nations’ chronic balance-of-payments deficits while also promoting commerce. A liberalised trade policy was projected to increase agricultural output and improve the economy’s performance.
However, the sector faces serious challenges as a result of ongoing obstacles impeding sector performance, such as weak sector development, low productivity, uncompetitiveness, inefficiency, and a worsening poverty condition.
The escalating economic woes prompted the July 2000 implementation of the structural adjustment programme (SAP), which included trade liberalisation as a key component.
It was thought that the implementation of SAP would improve agriculture sector production efficiency, however research has indicated that the industry’s inefficiency can be ascribed to structural rigidities that have existed since the commencement of SAP.
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