ABSTRACT
This study investigated the effect of globalization and labour market activities in Nigeria for the period 1981-2019 with the help of the ARDL model of estimation and toda and yamamoto granger causality test to determine the level of impact that one variable has on each other. Results showed that Foreign Direct Investment Inflows (LNFDII) had a positive relationship with Labour market in the short and long run period in Nigeria, Gross Fixed Capital Formation % Contribution of GDP (GFCF_GDP) had a weak positive relationship with Labour force in the short run and insignificantly influenced labour market in the long run while Real Effective Exchange Rate (REER) had a positive relationship with Total Labour Force (TLABF) and insignificantly at 5% level of significance in the long run where the result of toda and yamamoto granger causality test indicated a Uni-Directional causality between total labour force and gross fixed capital formation in Nigeria. Based on these findings, the study recommended that Nigeria, as a developing nation, should develop its own domestic technology in order to reap the full benefits of globalization and to prevent macroeconomic volatility, developed countries must liberalize their short-term capital movements gradually in order for globalization to succeed.
TABLE OF CONTENTS
Title Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgments v
Table of Contents vi
List of Tables viii
List of Figures ix
Abstract x
CHAPTER 1: INTRODUCTION
1.1 Background to the
Study 1
1.2 Statement of the
Problem 4
1.3 Research
Questions 10
1.4 Objectives of the
Study 10
1.5 Statement of the Hypotheses 10
1.6 Significance of
the Study 11
17. Scope of the Study 12
CHAPTER 2: REVIEW OF RELATED LITERATURE
2.1 Conceptual
Framework 13
2.1.1 Globalization 13
2.1.2 Globalization
and labour utilization in Nigeria 14
2.1.3 Globalization
and employment generation; global experience 16
2.1.4
Employment generation; Nigerian
experience 19
2.1.5 Trade liberalization 22
2.1.6 Nigeria’s
experience with trade liberalization and labour market 24
2.1.7 The
employment effect of trade liberalization 26
2.1.8 Trade openness and employment generation in Nigeria 27
2.2 Theoretical
Literature Review 29
2.2.1 Traditional
HOSS theory of trade 29
2.2.2 Theory of Globalization 32
2.2.2.1 Globalization:
delocalization and supra-territoriality 34
2.2.2.2 Risk,
Technological Innovation and Globalization 37
2.2.2.3 Globalization
and the Rise of Multinational Corporations and Branding 39
2.2.2.4 Capitalism,
Free Markets, Instability and Division 43
2.2.3 Skill
Based Technological Change Hypothesis 45
2.2.3.1 Ricardian model 48
2.2.3.2 Heckscher-ohlin model 48
2.3 Empirical Literature Review 49
2.3.1 Foreign
experience 49
2.3.2 Nigerian
experience 53
2.4 Identified Gap in
Empirical Literature 60
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Research
Design 62
3.2 Theoretical Framework and Model Specification 62
3.2.1 Definition of
variables 65
3.3 Estimation Technique 67
3.3.1 Stepwise
regression analysis 67
3.3.2 Normality test 67
3.3.4 Unit
root test 67
3.3.4 Co-integration Test 68
3.3.4.1 Autoregressive distributed lag model (ardl)
approach to cointegration testing
or bound cointegration
testing approach 69
3.3.4.2 Requirements for
the application of autoregressive distributed lag model (ardl)
approach
to cointegration testing 70
3.4 Post-Estimation
Test 71
3.4.1 Error
correction mechanism (ECM) 71
3.4.2 Toda
and yamamoto for granger causality test 71
3.4.3 Breusch-godfrey
test for autocorrelation 72
3.4.4 Breusch-pagan
test for heteroscadasticity 73
3.4.5
Stability test 74
3.4.5.1 Cumulative
sum and cumulative sum of squares 74
3.4.5.2 Ramsey regression equation specification error
test 74
3.5 Sources
of Data 75
3.5.1 Description
of data 75
3.5.2 Software
application 75
CHAPTER 4: DATA
PRESENTATION, ANALYSIS AND DISCUSSION
4.1 Pre-Estimation Test 76
4.1.1 Stepwise
regression estimates 76
4.1.2 Descriptive
statistics 77
4.1.3 Selection
of lag length criteria 78
4.1.4 Unit
Root Test 78
4.1.5 Cointegration
Test 80
4.2 Dynamic short run ARDL error correction
model and discussion 81
4.3 ARDLlong run form for effect of
globalization and trade liberalization
onlabour
markets in Nigeria 84
4.4 Diagnostic
Test/Post Estimation Test 85
4.4.1 Breusch-godfrey
serial correlation LM test 85
4.4.2 Breusch-godfreyheteroskedasticity
test 85
4.4.3 Stability
test 86
4.4.3.1 Ramsey reset test 86
4.4.4.2 Cumulative and cumulative squares test 87
4.4.4.3 Toda and Yamamoto granger causality test 88
4.5 Discussion of
Findings 89
4.5.1 Effect
of trade openness on labour market in Nigeria 89
4.5.2 Effect
of foreign direct investment inflows on labour market in Nigeria 90
4.5.3 Effect of gross
fixed capital formation on labour market in Nigeria 90
4.5.4 Effect
of real effective exchange rate on labour market in Nigeria 91
CHAPTER 5: SUMMARY, CONCLUSION AND
RECOMMENDATIONS
5.1 Summary
of Findings 93
5.2 Conclusion
94
5.3 Policy
Recommendations 94
5.4 Areas for Further
Research 95
References 96
Appendices 101
LIST OF TABLES
Table Title Page
4.1 Stepwise regression estimates for
selection of variables 76
4.2 Common sample descriptive statistics 77
4.3 Lag order selection criteria 78
4.4 Summary
of stationarity test 79
4.5 Autoregressive
distributed lag bounds test for co-integration 80
4.6 Result of dynamic short run ardl error
correction model for effect of
globalization and trade liberalization on
labour market in Nigeria 81
4.7 Static long run
estimates of globalization and trade liberalization on labour
markets
in Nigeria. 84
4.8 Result
Breusch-godfrey serial correlation LM test 85
4.9 Result of
Breusch-pagan-godfreyheteroskedasticity test 86
4.10 Result of ramsey reset test 86
4.11 Result of toda and
yamamoto granger causality test 88
LIST OF FIGURES
Figure Title Page
1.1 Trend Movement Showing Working Poor PPP
$3.20 a day Percentage of Total Employment in Nigeria 5
1.2 Trend Movement of Imports of Goods and
Services in Nigeria 7
1.3 Trend Movement of Exports of Goods and
Service Percentage of GDP in Nigeria 8
4.1 Cusum test for
model stability 87
4.5 Cusum of Squares
for model stability 87
CHAPTER 1
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Globalization is a concept that has transformed the global environment
and has been adopted by all nations. While globalization is not fresh, its
implications have grown in recent years, making it a hot topic for debate in
numerous forums. It began to happen at a faster pace over the last 25 to 30
years under the framework of the General Agreement on Tariffs and Trade (GATT)
and the World Trade Organization (WTO) (Gallagher, 2009). Globalization refers
to the growing economic integration and interdependence of national, regional,
and local economies around the world as a result of increased cross-border
movement of goods, services, technology, and resources. Globalization,
according to Kwanashie (1998), is a method of incorporating economic
decision-making processes such as consumption, spending, and saving around the
globe.
As a result, globalization is described as a situation in which the
entire world is treated as a single market for the acquisition, use, and
production of productive resources. Globalization of the Nigerian economy
started in 1986 during the introduction of the Structural Adjustment Programme
(SAP) which ushered the country to liberalization, deregulation,
commercialization and privatization programme (Sanjaya, 2002). The major policy
of the Structural Adjustment Programme (SAP) is seen as those to improve
globalization and openness such as deregulation of exchange rate, trade
liberalization, deregulation of the financial sector, adoption of appropriate
pricing policies especially for petroleum products, rationalization and
privatization of public sector enterprise and abolition of commodity marketing
boards (Obaseki, 1999). It comes as a part of large array of economic,
technical, social, legal and policy changes, each with interactions and
feedbacks, making it difficult to separate the effects. Different analysts tend
to focus on different aspects of globalization, thus often talking at cross
purposes. The effects are diverse and difficult to isolate and evaluate.
Studies on the effects of globalization and trade liberalization on labour
markets are very rare in Africa unlike others and this suggests that a
generalizable relationship between globalization and employment in developing
countries as a whole may not exist, whereby the relationship is, rather,
context specific, dynamic and changeable, reflecting particular interactions in
each economy between the external facets of globalization (e.g. shrinking
economic distance, greater trade or the spread of international production)
that apply to the economy and internal factors that affect its employment
response in analytical terms.
In reality, globalization is a new name for laissez faire economy and an
attempt to unify normative principle of organization for all the countries of
the world by largely accounting for developed economies integrating with less
developed economies by means of foreign direct investment, reduction of trade
barriers and in many cases cross border immigration. Although the political,
cultural, social and environmental aspects of globalization are no doubt
important, the economic aspect is perceived to be at the heart of the
globalization process (Obadan 2006). Economic globalization fosters the
advancement of a global mentality and conjures the picture of a borderless
world bringing growing tendency towards the universal homogenization of ideas,
cultures, value and lifestyle through trade, banking, communication, transport
etc (Akor, Yongu & Akorga 2012).
Trade has been a vital issue in the economic relations of countries. It
goes beyond exchanging goods and services and leads to the urge to improve and
advance further through knowledge, skill acquisition which improves
development, capital and ideas which comes from the labor market and are
employed leading to expansion and improvement of quality and quantity of output
(UNCTAD, 2010).
The level of success of Nigeria in the rapidly integrating global world
can be understood from certain indicators such as the ratio of her
international trade and foreign direct investment, access to international
financial markets, relative openness of the economy are all guide to the level
of globalization. As a policy objective of globalization, trade liberalization
and deregulation of the exchange control regime have also been designed to
facilitate and enhance trading activities of the Nigerian economy with the rest
of the world. Import prohibition list of items have been reduced as government
opt to utilize tariff structures to protect end user product pricing of local
industries and discourage frivolous import thereby opening more employment
opportunities for the country.
In consonance with the policy of globalization, the economic policy of
the Nigerian government is intended to increase private sector participation
rate (labour force), generate productive employment to raise productivity,
increase export of locally manufactured goods and skills, improve technological
skills and attract foreign direct investment (Feridun, Olusi, Folorunso, 2006),
but unfortunately, many Nigerians are still living in abject poverty as our
foreign direct investment inflows is low, no export of capital goods whereby
only crude oil exports and this goes to show that the integration of the
Nigerian market with the global economy(market) has not yielded adequate
results.
1.2
STATEMENT OF THE PROBLEM
Today, as part of moving with the globalization trend and trade
liberalization, Nigeria is a member of and signatory to many international and
regional trade agreements such as IMF, WTO, and ECOWAS etc. The policy response
of such economic partnership on trade has been to remove trade barriers, reduce
tariffs and embark on outward-oriented trade policies. However economic growth
in Nigeria has been disappointing. Despite her large market size ranked 32nd
position, which should give her significant economies of scales in production
and attract investors, Nigeria still relies heavily on importation of consumer
goods with very high level of poverty.
Figure 1.1 Trend movement showing working poor PPP
3.20 a day Percentage of total employment in Nigeria. Source: United Nations
Data Centre
The world economic forum using her Global Competitive Index (GCI)
introduced in 2004, placed Nigeria on 120th of 148th
poorest nation using 12 pillars of competitiveness namely: Institution,
Infrastructure, Macroeconomic environment, Health and primary education, higher
education and training, goods market efficiency, labour market efficiency,
financial market development, technological readiness, market size, business
sophistication and innovation as evidenced from the data extracted from the UN
data centre, which showed that from 1991 to date, over 60 percent of Nigeria
employed labour force lives under $3.20 a day which is not enough to take care
of their basic needs considering the extra ordinary prevalence of inflation
rate in the country.
Based on these 12 pillars, labour market efficiency stands out where by
the unemployment rate increases every day and where those who are employed are
not being paid at least a subsistence level of wages to cater for their real
needs and wants considering the fact that the labour market plays an integral
role in the integration of the local market with the international market because
if Nigeria as a country is to change from being an import oriented country to
an export oriented economy, it means that the labour market will be efficient
enough to boast and raise productivity in the industrial sector whereby the
locally produced products can compete with their counterparts in other foreign
countries thereby raising the overall output of the economy (GDP).