GLOBALIZATION AND LABOUR MARKET ACTIVITIES IN NIGERIA

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Product Code: 00007605

No of Pages: 133

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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).