ABSTRACT
This study investigated the effects of trade liberalization policy on Nigerian economy, from 1970 to 2020. The specific objectives were to determine the trend of GDP growth in agricultural and manufacturing sectors between 1970 and 2020, examine the effect of trade liberalization policy on the output of agricultural and manufacturing sectors of Nigeria, determine the overall effect of the trade liberalization policy on Nigeria aggregate output, examine the effect of the trade liberalization policy on import and export in Nigeria and ascertain the effect of trade liberalization on the economic development of Nigeria at the micro level. Data were collected from Central Bank of Nigeria (CBN) statistical report bulletins, CBN online data base, National Bureau of Statistics, International Financial Statistics as well as World Development Indicators of World Bank for the period 1970-2020. Data were analyzed using Ordinary Least square, demand functions and the 2SLS regression technique with the help of Eview9 software. Unit root test was carried out using ADF to ensure the stationarity of data, Error Correction Model was used to stationalize the nonstationary data and finally co-integration test was carried out and a long-term relationship was ascertained to exist among the variables. The trend analysis showed a steady increase in GDP growth in agricultural sector and an increase at a decreasing rate in manufacturing sector in the period under study. The minimum GDP for agricultural sector is 1690000 million naira and the maximum is 18124411.58 million naira while that of manufacturing is 2303505.42 million naira and 15952220.14 million naira for minimum and maximum respectively. On the effect of trade liberalization policy on the output of both sectors, the study found that the degree of openness in trade has a positive and significant effect on agricultural GDP at 1% level, and the absence of a significant relationship with manufacturing GDP. Trade openness has a negative but insignificant relationship with overall aggregate output at the long-run and a positive insignificant value at the short-run. On the effect of trade liberalization policy on import and export, it has a negative and significant effect on Nigeria growth rate of real exports during the period in which liberalization took place and a positive and significant effect for import in the same period, implying that the period in which liberalization took place favoured imports. The effect of trade liberalization on the economic development of Nigeria was determined by its effects on poverty, inequality of income distribution, per capita gross domestic product and employment. The study found that degree of openness has a negative and insignificant effect on poverty, a positive and significant effect on income inequality, negative and significant effect on per capita GDP and a positive and significant effect on employment. The study recommends amongst others that the government puts in place policies to encourage export diversification rather than import, policies that will encourage small-scale and large-scale manufacturers alike and also engage in wealth generation programmes at the rural areas, so also the private sector, to help close the income inequality gap.
TABLE OF CONTENTS
Cover
page
Title
page i
Declaration ii
Certification iii
Dedication iv
Acknowledgement v
Table
of contents vi
List
of Tables ix
List
of figures x
Abstract xi
CHAPTER 1:
INTRODUCTION
1.1 Background Information 1
1.2 Problem Statement 9
1.3 Objectives of the Study 14
1.4
Hypotheses 15
1.5 Justification for the Study 15
Chapter 2: LITERATURE REVIEW
2.1 Conceptual Review 17
2.2. Theoretical Review 21
2.2.1 Neo liberalism and
the impact on trade 21
2.2.2 Traditional
theory of trade liberalization 22
2.2.3 David Ricardo theory of comparative
advantage (1886). 24
2.2.4 Adam Smith theory of absolute advantage
(1776). 24
2.2.5 Factor
endowments theory 25
2.2.6 Innovation
theory 26
2.2.7 The
Vent–for surplus theory of international trade 27
2.2.8 Effect
of free trade on growth 30
2.2.9 Multilateral and bilateral agents behind
trade liberalization 33
2.2.10 Economic conditions prior to
liberalization in Nigeria economy
34
2.2.11 Rationale for trade liberalization in
Nigeria. 35
2.2.12 Overview of Nigeria’s
major trade polices 35
2.2.13 Trade policy instruments under import
substitution strategy
(ISS)
tariff policy 38
2.2.14 ECOWAS
and trade liberalization 39
2.2.15 Nature and importance
of agriculture 41
2.2.16 Nature of
manufacturing sector in Nigeria 42
2.3
Empirical Review 43
2.3.1 Trade liberalization and industrial growth 43
2.3.2 Trade liberalization and agricultural productivity growth 45
2.3.3 Trade liberalization and economic growth 46
2.3.4 Divergent
views on trade liberalization and economic growth 55
2.3.5 Agricultural sector and economic development 57
2.4 Analytical
Review 58
2.4.1 Unit root test 58
2.4.2 Co-integration test 59
2.4.3 Error correction model 60
2.4.4 Ordinary least
square (OLS) 62
2.4.5 Simultaneous equations models and 2-stage
least squares 64
CHAPTER 3: METHODOLOGY
3.1 Study
Area 67
3.2 Data
Collection 69
3.3 Method of Data Analysis 70
3.3.1 Estimation Procedure 70
3.4 MODEL SPECIFICATION 71
CHAPTER 4: RESULTS AND DISCUSSION
4.1 Diagnostic/Pre- Estimation Tests 79
4.1.1 Tests for stationarity: 79
4.1.2 Tests
for cointegration: (the Engle-Granger test) and specification
of
the error correction model (ECM) 80
4.2 Trends in Agricultural and
Manufacturing
Sectors
GDPs from 1970 -2020 82
4.2.1 Summary statistics of the trends in
agricultural and manufacturing
sectors
GDPs 82
4.2.2
Graphical presentation of trends of agricultural sector GDP in
Nigeria
from 1970-2020. 83
4.2.3 Graphical
presentation of trends of Manufacturing sector GDP in
Nigeria
from 1970-2020 84
4.2.4 Exponential trend equations for
agricultural and manufacturing
sectors
GDP in Nigeria (1970 – 2020) 86
4.2.5 Acceleration, deceleration or stagnation
in the GDP of agricultural
and
manufacturing sectors 88
4.3. Effect of Trade Liberalization Policy on
the
Output of Agricultural and Manufacturing
Sectors
of Nigeria 89
4.3.1
Long–run response of agricultural sector to trade liberalization in Nigeria
(1970- 2020) 89
4.3.2
Short-run response of agricultural sector to trade liberalization variables
in Nigeria (1970- 2020) 92
4.3.3
Long–run response of manufacturing sector to trade liberalization variables
in Nigeria (1970-2020) 95
4.4. Overall Effect of the Trade
Liberalization Policy
on Nigeria Aggregate Output 101
4.5 Effect of Trade Liberalization Policy on
Import And
Export in Nigeria 106
4.6 Effect of Trade Liberalization on the
Economic Development of
Nigeria at the Micro Level 110
CHAPTER 5: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary
114
5.2 Conclusion
116
5.3 Recommendations 117
References
LIST OF FIGURES
2.1
Transmission mechanism of
general innovation theory 27
2.2 Diagram of vent for surplus argument 28
2.3 Transmission
channel for trade expansion 29
2.4 Losers and gainers of free trade curve 31
3.1 The
map of Nigeria 69
4.1 Trend
of agricultural sector GDP in Nigeria (1970 – 2020) 83
4.2 Trend of manufacturing sector GDP in
Nigeria (1970 – 2020) 85
LIST OF TABLES
4.1 Result
of unit root test for variables used in regression analysis 80
4.2 Residual-based
co-integration test (the Engle-Granger test) for the impact of trade liberalization policy on
Nigerian economy
from
1970-2020 81
4.3 Summary
statistics of agricultural and manufacturing sectors GDPs 83
4.4 Estimated exponential trend equations for
agricultural and
manufacturing
sectors GDPs (1970-2020) 86
4.5 Estimates of quadratic equation in time
trend variable for the
agricultural
and manufacturing sectors GDP 88
4.6 Long-run effect of trade liberalization
policy on the GDP of
agricultural
sector of Nigeria; 90
4.7 Regression result of the short-run effect of
trade liberalization policy
on agricultural GDP in
Nigeria (1970 – 2020) 93
4.8 Long-run effect of trade liberalization
policy on the GDP of
manufacturing
sector of Nigeria 96
4.9 Regression result of the short-run effect
of trade liberalization policy on
manufacturing sector GDP in Nigeria (1970 – 2020) 98
4.10 Regression
result of the response of aggregate GDP to changes in trade liberalization in a long-run (1970 –
2020) 101
4.11 Regression
Result of the response of Aggregate GDP to changes in trade liberalization in a short-run (1970 –
2020) 104
4.12 Long run
relationship between trade liberalization policy variable and
export
in Nigeria (1970 -2020) 107
4.13 Long run relationship between trade
liberalization policy variable and
import
in Nigeria (1970 -2020) 108
4.14 Identification results for order conditions
and rank conditions 110
4.15 Two-stage least squares estimation results
of the effect of trade liberalization on
the economic development of Nigeria at the
micro
level 111
CHAPTER 1
INTRODUCTION
1.1
BACKGROUND INFORMATION
The world is getting globalized and
trade is contributing to this transformation more than any other factor. In
essence, high economic, political, cultural, social, intellectual and human
integration experienced in the world recently is majorly due to trade among
different countries. Again, trade has played a key role in the development of
world economies than any other factor. As a result of interactions among
different countries with each other through trade, we experience change through
the exchange of goods, services, skills, knowledge and expertise. As these go
on, trade increases choices available, improves the distribution of and level
of revenue, enhances prospects for advancement of technical competences, and
encourages people to speed up the change process in their nations. The most
anticipated change process depicts development. Thus, trade and development go
hand in hand and so any strategy adopted in trade has bearing on development
(Yasmin, B., Jehan, Z., and Chaudhary, M., 2006).
So many market-oriented steps have
emerged in the last couple of decades in the world. As a result of these steps,
there has been a worldwide trend towards liberalization of the assets check
account, credit, foreign barter, trade and local ingestion in separate
nationalities. Moreover, the aspect of various economies which has received
emphasis is trade liberalization. Trade liberalization signifies the removal of
barriers to the movement of goods and services in international trade (Yee,
I.S., Kueh, J., Hwang J.Y. and Liwan A.,
2021). Trade
remains an essential source and origin of economic development in Nigeria and
other developing territories of the world. This centered upon the fact that
trade initiates work and livelihood, increases markets, expedites competition,
circulates innovation with ideas, and increases earnings of individuals and
government (Iyoha and Oriakhi, 2002). International trade increases the market
of a nation’s production while export could steer the growth in national production
and could become an instrument of economic development of such country.
Economists are always interested in indices which initiate development in
various countries of the world. An example of
such indices is trade liberalization. Global trade has brought togetherness of
different remote areas of the world and several civilizations; international
trade has also facilitated dissemination of knowledge, innovations and
intuitions, and smoothed the flow between localities and countries.
Furthermore, trade liberalization speeds up production, boosts efficiency and
lowers the cost of production, hence, enhancing international belief and
assurance in market and trade systems of an economy (Iyoha and Oriakhi, 2002).
International trade has been existing
due to ample history and motivation which centered on the reality that the
allocation of geographical, human, and assets resources differs throughout
economies of the world. Variety of technologies or distribution of resources
are necessary and essential for the economical production of several types of
traded goods (i.e both imports and exports) and services (Emerenini and
Ohadinma, 2018). In addition, preferences for merchandise of goods and services
likewise vary between nations. As stated by Rondinelli (2003), international
trade offered the channels through which nations enlarged their scope regarding
accessibility of goods and services and made up for those buying and selling
where they are less efficient in production. This has led to a rise in network
of links and connections in markets and trades, presenting new opportunities
and prospects for advancing economic development activities. International
trade has also permitted for global sourcing strategies, which provides new
possibility for enterprises or companies to partake in the worldwide market
activities, and also provide several goods and services upon a competitive
assumption. The relationship regarding nations in the globe has remained a
vital opportunity for the nations to foster their economic growth as well as
development.
Developments for instance, include
origination of vehicle for water travel, assembly of railway networks,
improvement and modernization in telecom devices, mobile phones, land vehicles,
planes as well as web. These have altogether added and aided enormously in
turning the entire world into “global village (Cairncross, 1997). The
above mentioned have increased the prospects of intercontinental trade.
However, in the primitive stage regarding international trade precisely, beginning
at sixteenth up till twentieth centuries, existed just about induced near trade
liberalization, by the middle of the twentieth century trade liberalization
gained focus and core phase in international trade (World Trade Organization,
2013).
The initial trends of trade liberalization
can be traced to the periods between the 1820s and the 1840s of which, freer
trade occurred according to a bilaterally agreed reciprocal tariff reductions where
agreements with other nations on mutual tariff reductions were done.
Although, late 1840s preceding the onset of the middle of twentieth century,
nations initiated separate decisions and resolutions on decreasing hindrances
and difficulties on buying and selling. Remarkably in view of this, there
existed the abolishment of Britain’s Corn Laws of the 1846 that terminated
affected nation’s utilization tariffs laid down to guard its agriculture and
manufacturing sectors from foreign competition. Through that act and
achievement, the nation operated autonomously and freely in lowering import
levels. This resulted partially from the failure of Britain to attain
satisfactory mutually beneficial contracts with other nations that were
vigilant in protecting their national markets to be controlled and governed by
its leading and prominent industries. Furthermore, the new opinion of rule was
assumed to increase the nation’s wealth owing to low imports as consumers
gained and the costs of trade reduced (World Trade Organization, 2007).
Following dramatic World War II, bureaucratic
and business-related joint efforts that search for fall - offs of buying and
selling hurdles and difficulties throughout the nations, piloted the formation
of the General Agreement on Tariffs and Trade (GATT) of the year 1947. The GATT
existed as the official and recognised organization to supervise and govern
trade among nations and provide solution to the possible barriers that may
possibly arise (Alugbuo and Sebastian, 2020). The formation of GATT enhanced
movement to the sizeable liberalization regarding global buying and selling as
well as supported constant and stable growth and development of the worldwide
buying and selling (World Trade Organization, 2013).
The GATT existed as a group regarding
joint legal and equitable trade understandings and concords led to minimizing
buying and selling hurdles via reducing tax levels as well as abolishing
allocations amongst engaging nations across the globe. GATT pursued to
guarantee that trade among participant countries were operated without bias and
bigotry. Participant countries were to make their markets accessible freely to
every other country participant. Under GATT, any contract and concord reached
by any two participant nations of GATT towards lowering the tax levels
certainly stretched to other country participants. In addition, the GATTs
comprised lengthy memorandum had specific tax recognitions of each engaging
country, denoting and signifying tariff levels that each nation had concord to
spread to participating countries. GATT also chose the usage of tariffs to
import allocations or other quantifiable trade constraints for protection and
guard; it constantly and continuously chased the eradication of the latter.
GATT integrated other wide policies for instance, the standardization in
customs rules and the prerequisite of each participating country to bargain
reductions in tariffs levels on bid by another country. Despite that, at
whatever time trade agreements result to too much deficits to national
producers, GATT established precaution for avoidance article permitting concord
countries to change the agreements and contracts through tariff adjustment
(GATT, 1994; WTO, 2013).
Trade dialogues between world trade
organization participants involve persisted talks for decreases in tax rates,
as well as the demolishing of non-tariff obstructions to buying and selling,
for instance, permission, authorizations, allocations as well as high-tech
stipulations (World Trade Organization, 2017). The major important objectives
of the WTO include presenting a mode for bargaining and scrutinizing additional
trade liberalization in the nations; ascertaining and executing policies for
international trade; and settling trade disagreements.
According to Hammouda (2004) before
1980, only some countries supported free trade policies, such countries include
Japan, Hong Kong, Singapore, South Korea, as well as Taiwan. Mwaba, (2000)
noted that by the year 1990 several countries joined and they include Chile,
Ghana, Uganda, Kenya as well as Nigeria initiation of trade liberalization. As
noted by Adenikinju (2005), Nigeria’s trade policy since 1960 has passed
through phases of extreme protectionism to its present liberal state. From 1960
until the middle 1980s methods like high import levels and quantitative
restraints were applied to help trade policy which was proposed to safeguard
and preserve the domestic agricultural and manufacturing sectors. This course
of policy was informed by the Import Substitution Industrialization (ISI) as
well as indigenization policy of the government with respect to advancing and
growing agricultural and manufacturing sectors. The intention of the trade
policy in this period was to boost domestic production by discriminating in
favour of capital goods against consumer goods.
Between the year 1985 and the year
2000, Nigeria’s trade policy moved considerably towards greater liberalization
of trade and the pricing technique. This existed in the direction of
diversifying export in addition to improving financial worth towards the export
of agricultural products (Adenikinju, 2005).
The enactment of Structural
Adjustment Programme (SAP) in 1986 resulted in the elimination of the import as
well as export licensing system, bureaucratic controls on trade, as well as
foreign exchange control on all current transactions. Also, to enhance link to
foreign raw materials and intermediate goods for use by exporting firms in the
manufacturing sector, the duty drawback/suspension scheme was introduced
(Omoke, 2007). Also put in place was the Second-tier Foreign Exchange Market
(SFEM) allowing market forces determine the exchange rate of the naira. This
price determination mechanism ended the use of administrative discretion in the
allocation of foreign exchange to end-users. Beginning in the year 2001 up till
2012, international trade was increasingly liberalized and targeted on
private-enterprise led development and diversification of export, in an effort
to improve non-oil export earnings. By deregulation, the Nigerian government
tried to remove or simplify government rules and regulations that inhibit the
operation of market forces, bringing about competition among key players in the
market (Okezie and Amir, 2011). Therefore, the main purpose of Nigeria’s trade
policy was to corroborate and aid generation and delivery of goods and services
for both domestic and international market, with the intention of attaining
improved economic growth and development.
A background information on the
structure and performance of agricultural sector in the economic development of
Nigeria is as presented here. Before the colonial era, Nigeria had fairly
complex organizations. These organizations were majorly peasant communities
producing a variety of commodities mostly to meet their needs. Trading of the
various commodities was broadly based on batter system. The coming of the
colonialist introduced a money economy among the peasant farmers to produce
more cash crops for sale and for export to Western Europe.
Agricultural sector in Nigerian
context embraced all the sub-sectors of the primary industry. They include
farming, live-stocks rearing, forestry and others. Productivity is still very
low due to the inadequate application of modern implements like tractors and
chemicals.
Shifting cultivation which has
perhaps disappeared in most parts of the world is still widely practiced by
peasant farmers. This is due to land fragmentation or land tenure system
problem. Fishing is carried out along the coast by many fishermen who use
canoes and throw-nets. At the same time, fragmentation of farm land makes it
difficult for the farmers to have any strong case to support their application
or their request for bank loans. Therefore, these structures of agriculture
make it laborious, tedious and poorly remunerative (Daramola A., Ehui, S.,
Ukeje, E. and Mclntire, J., 2007).
For manufacturing, the general belief
is that in manufacturing lies the main instrument of rapid growth, structural
changes and self-sufficiency (Anyanwu, 1993). Therefore, the manufacturing
sector in Nigeria has been given the crucial role of driving the needed growth
and development of the economy. Again, the sector has been assigned the major
task of transforming the economy away from overdependence on crude oil, and an
import dependent economy to a diversified and export-oriented economy (Federal
Government of Nigeria, 2001). The country’s foreign trade comprises of oil
dominated export and non-oil commodities dominated imports. The crude oil and
gas sector accounted for over 95 per cent of the earnings from exports in 2011
and 68.88 per cent in 2015. The sector contributed 14.8 per cent to GDP in 2011
and 14.4 per cent in 2015. On the other hand, the share of the non-oil imports
in total merchandise imports was 70.26 per cent in 2011 and 81.87 per cent in
2015 alongside its share in GDP of 19.22 per cent and 16.11 per cent in 2011
and 2015, respectively (National Bureau of Statistics, 2016).
Relying on crude oil alone puts the
economy at a great risk as the international market for crude oil is often
characterized by price volatility which often affects economic aggregates
considerably. Oriakhi and Osaze (2013) put forward the view that crude oil
price volatility has a substantial effect on the exchange rate of the naira
owing to the fact that crude oil export earnings accounts for about 90 per cent
of Nigeria’s foreign exchange and thus ultimately determining the country’s
amount in foreign reserves. Hence, periods of fall in crude oil price have been
associated with cuts in budgeted revenue and expenditure. Moreover, the
industry employs the use of capital-intensive processes which do not support
employment generation in the economy.
The manufacturing sector provides the
base in which the relative importance of fossil oil to the economy of Nigeria
can be reduced; through its potential to advance activities in the secondary
and tertiary sectors. In addition, a developed manufacturing sector ensures the
enhancement of the economy’s productive capabilities to provide an increasing
range of manufactured goods thereby decreasing reliance on imports and
providing for diversified exports. This can only be achieved through improved
productivity and competitiveness of domestic firms as well as improved exports
of manufactured goods.
1.2
PROBLEM STATEMENT
Nigeria has adopted significant trade
liberalization policies over the years which include reduction in mean tariff
rates and effective rates of protection, as a means to attaining
industrialization of which agriculture and manufacturing are key. This was as a
result of the quest for diversification of the economy in order to avoid
over-dependence on oil. (Etuk,
Igbodo and Effiong, 2017).
In an effort to diversify economy and
move focus away from oil, various regimes of the federal government launched
several policies and plans targeted at enhancing economic development and
poverty reduction. Such policies and program include Import Substitution
Industrialization Strategy (ISI) of 1960s and 1970s, that fostered machineries
importation for local industries usage, and Export Promotion Strategy of 1976
that fostered export among others (Emerenini and Ohadinma, 2018) and Green
Revolution launched in the year 1980. However, the phrase “trade
liberalization” became distinct and prominent through the implementation of
International Monetary Fund (IMF) Structural Adjustment Programme (SAP), of
1986. The major goal of SAP was to reform, improve as well as diversify the
economy of Nigeria (Oyejide, 2003). Furthermore, SAP was initiated to reduce
the country’s excessive dependence on crude oil because of the fall in crude
oil price in the global market, with greater emphasis on the non-oil and
tradable sectors of agriculture and manufacturing. Following the establishment
of SAP, various policies and plans were adopted in Nigeria for reducing
obstacles to trade as well as open up the economy to international environment.
It was expected that adoption of SAP will restore agricultural sector to its
production efficiency but this seems far from reality, hence the need for this
study, to examine and ascertain exactly what effect trade liberalization has on
the output of the agricultural sector of Nigerian economy.
Agricultural goods are considered
export commodities before the advent of oil in Nigeria. Apartfrom being the
major export earning in Nigeria before oil discovery, their importance could
bemeasured in terms of their contribution to GDP and also to total export and
total non-oil export earnings. The average annual growth of agricultural output
in Nigeria fell continuously during and after the pre-SAP period. Despite this
fall in output, agriculture stillcontributed up to 41% of the aggregate Real
Gross Domestic Product (RGDP) in Nigeria between 2001-2007 (NBS, 2011).
Agricultural output growth has not been consistent in Nigeria. The sector did
not show any significant increase in its contribution to RGDP during the SAP
period and this indicates that the sector has not witnessed any significant
improvement which is a clear indication that the structure of agriculture under
trade liberalization was still tied in pre- trade liberalization era. However,
contribution of agricultural sector to both total export and non-oil export earnings
has been decreasing continuously after the SAP period with its contribution to
total export earnings not significant before and after SAP. Agricultural sector
as the major employer of labour in Nigeria has been showing a declining trend
in its contribution to total employment generation in Nigeria (Daramola et al., 2007).
The Nigerian manufacturing sector is
also faced with feeble institutions that have influenced the operation of
trade. These institutions, like Chambers of commerce, Manufacturers Association
of Nigeria, SMEs associations etc. are easily scoured by government and elite
powers who allot foreign exchange to their co-horts in order to buy raw
materials abroad. This leaves the domestic manufacturers with the trouble of
obtaining foreign exchange at exorbitant rates so as to continue in business,
thus multiplying their production cost and jeopardizing their business
survival. This has proven to be an obstacle to accomplishing the full capacity
of the manufacturing sector in Nigeria (Kanang, 2017). It is the aim of this
study to examine the extent of the relationship that exists between the
manufacturing sector’s output and trade liberalization policy in Nigeria, with
the intention of proffering solutions to the problems facing the sector.
The manufacturing sector in Nigeria
has had a mixed performance over the years, owing to the fluctuations in its
contribution to the country’s Gross Domestic product (GDP). In 1960,
manufacturing share of the Nigeria’s GDP was 4.8% rising to 6.9% in 1965, and
to 7.2% in 1970. The manufacturing sector’s contribution to the GDP stood at
8.3% and started declining in 1993 from 7.2% to 6.0% in 2000 (CBN, 2003). Also,
manufacturing sub-sector capacity utilization fell from 75% in 1980 to 42.7% in
1986 and to 39.0% in 1990. By 1992, the sector capacity utilization rose to
40.4% and in 1995 collapsed to 29.3%. In the same vein, growth rate of
manufacturing rose from 23.6% in 1965 to 77% in 1975 but falling drastically to
only 6.6% in 1980. The only rise that exceeded 10% since then was recorded at
20.5% growth rate in 1985 (CBN, 2000). By 1993 it fell to 4.2%, in 1994 it was
recorded as 5%. In general, the industrial sector as a whole grew by 5.2% in
1980 to 1986 period, and also fell to 1.02% in 1996 to 0.72% in 1997 (CBN,
2000).
The manufacturing sector in Nigeria
can grow to provide sustainable economic development, given abundance and
varied resources endowment to support mass production both for local and export
market there by diversifying the economy from over reliance on oil earnings
(Osagie& Aigbovo, 2016). Developing the Nigeria
industrial/manufacturing sector
requires a concerted effort of government and the private sector to create an
environment that would encourage investment, primarily by Nigerians as a firm
basis for attracting and sustaining foreign investments in the sector. A fully
developed industrial sector would provide a firm basis for sustainable economic
development. Industrial development is bound to be frustrated unless there is a
simultaneous progress on several fronts such as; science and technology,
education, energy and transportation.
Following the heavy reliance of the
economy on crude oil, the manufacturing sector witnessed a persistent decline.
In fact, from 1999 it moved upwards reaching its peak of 60 percent in 2003.
The development might have been induced by the civilian administration that
took over from the military in May 1999 and its economic reform measures that
attempted to put the manufacturing sector in a right path and make it export
oriented. The low contribution of the manufacturing sector to gross domestic
product (GDP) suggests that trade liberalization policy is yet to stimulate the
sector to make meaningful impact on the economic development of Nigeria. The
Manufacturing sector represented 6.55% of total Real GDP in year 2010. It grew
by 7.79% of real GDP in year 2011 and in 2012 reached a value of 7.79%.
However, growth was highest in 2013, at 9.03% of real GDP, a value that had
never been recorded in decades. Beyond 2008 the manufacturing sector’s share in
GDP was increasing, and by 2015 it attained 9.69. This could have reflected the
renewed effort of government in meeting some of the infrastructural needs in
the sector, notably electricity.
Nonetheless, the contribution of
manufacturing to GDP has fallen short of the anticipated 25 per cent target set
for 2010, and the 9.69 per cent reached in 2015 is disappointing given the
23.36 per cent mark expected by 2020 (Federal Government of Nigeria, 2009;
2017).
Based on the stated problems, the following research
questions arise, to guide the study:
i.
What is the growth trend of GDP of Nigeria in
the agricultural and manufacturing sectors?
ii.
What is the effect of trade liberalization
policy on the outputs of agricultural and manufacturing sectors of Nigeria?
iii.
What is the effect of trade liberalization
policy on Nigeria’s aggregate output?
iv. What are the
effects of trade liberalization policy on import and export in Nigeria?
v. What
is the effect of trade liberalization or openness on poverty, income
inequality,
GDP per capita and employment?
1.3 OBJECTIVES OF THE STUDY
The broad
objective of the study was to determine the effect of trade liberalization
policy on Nigerian economy, from 1970 to 2020. The specific objectives are
to:
i. determine
the trend of GDP growth in agricultural and manufacturing sectors between 1970
and 2020; ii. examine the effect of trade liberalization policy on the output
of agricultural and manufacturing sectors of Nigeria (both in the long-run and
short-run periods); iii. determine the overall effect of the trade liberalization policy
on Nigeria aggregate output; iv. examine the effect of the trade liberalization
policy on import and export in Nigeria and;
v. ascertain the effect of trade liberalization on the economic
development of Nigeria at the micro level.
1.4 HYPOTHESES
The following hypotheses were examined:
H1. There is a positive relationship between
aggregate output and trade liberalization H2. There is a positive relationship between the growth rates of
export and import and trade liberalization
H3. Trade liberalization as captured by Trade openness, has a
negative relationship with poverty, and positive relationships with Income
inequality, GDP per capita and employment.
1.5
JUSTIFICATION FOR THE STUDY
Agricultural and manufacturing
sectors are very crucial sectors in economic development of a nation. It has
been an engine of capital and asset creation of developed economies.
Agricultural and manufacturing sectors are also strong and healthy forward and
backward links with other sectors of the economy, as they are capable of
increasing the overall level of economic activities. In view of Nigeria’s
pursuit for development of these sectors, the study aims to discover to what
extent trade liberalization can influence attainment of this development
objective especially in agricultural and manufacturing sectors.
Again, most of the studies reviewed
so far have analyzed the impact of trade liberalization on different indicators
of development separately. Mainly economic growth is considered as the main
indicator of development ignoring all other aspects or dimensions of development.
The positive relationship between trade liberalization and economic growth is a
necessary but not a sufficient condition for development, and so many other
factors must be considered in finding out the impact of trade liberalization on
economic development.
This study took into account the most
crucial elements of development such as GDP per capita, income inequality
measured by the Gini coefficient, the poverty level, and employment over the
period from 1970-2020 for Nigeria. The study provides recent evidence for the
impact of trade liberalization on the economy of Nigeria using a simultaneous
equations model keeping in view the simultaneity of various factors.
The findings of this study will also
offer valuable information to Federal Ministry of Trade and Investment, in
operating and treating the nation’s bilateral and multilateral trade dialogues
and information flows. It will as well guide the Federal Ministry of Finance in
dealing with tariff duties in the country. Furthermore, the results of the
study is relevant to the Ministry of Agriculture in Nigeria and Manufacturers
Association of Nigeria (MAN) as it provides essential possibilities to improve
the activities of firms. Additionally, the study seeks to add to the existing
knowledge on the relationship that exists between trade liberalization and
sectors of agriculture and manufacturing in Nigeria.
The results will also show the effect
exchange rate has on trade and economic output. This will be useful to policy
makers involved in financial and trade development since foreign trade is
crucial for economic development in Nigeria.
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