The Impact of International Trade on the Economic Growth of Nigeria
Chapter One
Objectives of the Study
International trade has been an “Engine of growth” for the global economy and Nigeria in particular. Large dissenting voices in the 20th Century claim that international trade only perpetuates the under-development of poor countries due to the fact that there is a disproportionate share of gains from international trade that accrues to industrialized countries. We shall focus on the following objectives.
- To examine the relationship between international trade and economic growth.
- To examine the impact of international trade on economic growth of Nigeria.
- To examine the factors that hinder international trade in Nigeria.
CHAPTER TWO
LITERATURE REVIEW AND THEORETICAL FRAMEWORK
INTRODUCTION
International trade has been and is today an economic force that has spurred commerce, promoted technology and growth, spread cultural patterns, stimulate exploration and colonization, and frequently fanned the flames of war. The history of international trade has gone hand in hand with the development of civilizations. From ancient times, international trade brought about the exchange of products and raw materials between one land or nation and another. Although such trade was often conducted in barter form and was of small volume by today‘s standard, this interchange of products was important in economic and historic development.
International trade in its early beginnings was necessary, not just because it provided one society with products such as cowries from West Africa to other areas, international trade also led to cultural interchange, thus trading not only on product, but also on lifestyles, customs and technology.
In addition international trade prompted the development of monetary system of record keeping and accounting, adn of an entire vocation of commerce. One can state that the economic and political development of the entire western world was spurred and enhance by international trade. Another distinct contribution of international trade was the strong promotion given to the field of exploration, map making, adn ship construction technology. Early international trade routers ranged over vast expanses, thus requiring advances in transportation to make possible further search for new products and markets. Let us not forget, of course, that such desire for new trade routes products, and markets was the driving force that launched explorations leading to the discovery of the new world.
Columbus set out, as you can recall, not to settle in a new nation, but to discover a new trade route of the Orient. The interest upon his return to Europe centre not on his accounts of forest and soil, but on the new products available such as tobacco, corn, cowries etc. As international trade progressed and technology developed, these explorations were to turn up another area of foreign trade, still important today. This was the import of raw materials by a nation and the re-export of finished and manufactured products. As a result, not only living standards advanced, but national incomes were also increased.
LITERATURE REVIEW
ARGUMENT FOR AND AGAINST INTERNATIONAL TRADE AS AN ENGINE OF GROWTH
.Direct Benefits
When a country specialises in the production of a few goods due to international trade and division of labour, it exports those commodities which it produces cheaper in exchange for what others can produce at a lower cost. It gains from trade and there is increase in national income which, in turn, raises the level of output and the growth rate of economy. Thus, the higher level of output through trade tends to break the vicious circle of poverty and promotes economic development.
A Less developed country (LDC) is hampered by the small size of its domestic market which fails to absorb sufficient volume of output. This leads to low inducement to investment. The size of the market is also small because of low per capita income and of purchasing power.
International trade widens the market and increases the inducement to invest income and savings through more efficient resource allocations.
In Smith‘s ‗vent for surplus‘ theory to the LDCs for measuring the effects of gain from international trade, the introduction of foreign trade opens the possibility of a ‗vent for surplus‘ (or potential surplus) in the primary producing LDCs. Since land and labour are underutilised in the traditional subsistence sector in such a country, its opening up to foreign trade can produce a surplus of primary products in exchange for import of manufactured products which it cannot itself produce. Thus, it benefits from international trade (H. Myint 1958).
Many under-developed countries specialise in the production of one or two staple commodities. If efforts are made to export them, they tend to widen the market. The existing resources are employed more productively and the resources allocation becomes more efficient with given production functions.
CHAPTER THREE
RESEARCH METHODOLOGY
Introduction
This chapter explicitly deals with the methodology employed in the course of the research. in the previous chapter there was an argument in support of and against international trade as an engine of growth. However relying on this notion will not provide us with an optimal solution for achieving the desired result as there is need for empirical verification through econometric methods, putting in mind the supporting criteria.
The aim of econometric is to verify economic theory or assertion on how well the explanatory power of the model estimates behaves with regard to macroeconomic unit (Koutsoyiannis 1973). This justified the reason for adopting econometric tools for this study.
Model Specification
There has been series of models in the area of international trade, Ayinde Adelemo on
―External Trade and Internal Development‖ used GDP as a function of net export, degree of openness and terms of trade, Bela Balasa on ―Export and Economic Growth‖ used GDP as a function of net export, degree of openness and exchange rate, Oviemuno Anthony on
―International Trade as an Engine of Growth in Developing Countries‖ used GDP as a function of Exchange rate, import, export and inflation, the dependent variable for the above studies is economic growth measured with GDP while the various independent variables follows.
CHAPTER FOUR
DATA ANALYSIS AND INTERPRETATION OF RESULTS
INTRODUCTION
The presentation, analysis and interpretation of the data gathered were discussed in detail in this chapter. Given that it has been widely acknowledge that research is an investigation taking place, in other to discover new facts, verifying existing knowledge as well as obtaining additional information about something with a view of solving its inherent problem or improving its beneficial attributes, this work seeks to evaluate the effect of trade on economic growth in Nigeria. In view of this, this chapter is design to present the result of the empirical investigation.
The result reveals a lot of interesting issues regarding the relationship between economic growth (measured by Gross Domestic Product) and external trade using net export, exchange rate, trade policy changes and degree of openness as the explanatory variable as specified in the model. The time series data used spans 30 years (1980-2009).
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
SUMMARY
This study was carried out to investigate the effect of trade on economic growth in Nigeria. At Independence in 1960, agricultural produce was Nigeria major export trade. The advent of petroleum considerably boosted foreign exchange earnings from the early part of the mid- 1970s. Export earnings grew at an estimated annual rate of 67.4 during the period of 1970- 1974. The trend and pattern of exports tended to suggest that the country was moving from a mono-cultural agrarian economy to a more diversified economy. The illusion in that hope, however, soon became apparent with the observation that expansion in exports till date was singularly accounted for by petroleum and hydrocarbon. Oil dependency, and the allure it generated of great wealth through government contracts, spawned other economic distortions. The country’s high propensity to import means roughly 80% of government expenditures is recycled into foreign exchange. Cheap consumer imports, resulting from a chronically overvalued Naira, coupled with excessively high domestic production costs due in part to erratic electricity and fuel supply, have pushed down industrial capacity utilization to less than 30%. Many more Nigerian factories would have closed except for relatively low labour costs. Domestic manufacturers, especially pharmaceuticals and textiles, have lost their ability to compete in traditional regional markets.
Nigeria has evidently benefitted from international trade over the past half a century. But the gains could have been greater if the economy and the production structures had been responsive and more readily adaptable to changing internal demands and external signals from the international economic system. In a constantly changing and highly competitive global environment, Nigeria need to continually re-examine and evaluate the sources of their strengths and weaknesses in order to devise appropriate policy strategies that could lead to maximum national benefits within the context of identified constraints.
CONCLUSION
Economic growth and development with their attendant benefits would be very hard to achieve if residents of an economy could not buy some goods and services from abroad and most importantly, export goods and services to generate revenue to pay for the imports. Consequently, the dynamic role of trade as engine of growth in developing countries has long been recognized by economic development experts and corroborated in the theories considered in this study. It thus have an accelerating effect in achieving the macroeconomic objectives of nations such as full employment, income redistribution, favourable balance of payments, price stability, development of local technology, diffusion of managerial skills and stimulation of indigenous entrepreneurship to innovation.
This research work has been able to establish the effect of trade on economic growth in Nigeria through the effect of some variables associated with external trade (like net export, exchange rate, trade policy changes and degree of openness) on economic growth. The result showed that net export, exchange rate, trade policy changes are in line with the a priori expectation and are positively related to gross domestic product. According to the data‘s in table 4.2.1 it is obvious that from 1980-2009 net export has been positive implying that export exceeds import but this increase is mainly contributed by a sector of the Nigerian economy. Thus Nigeria has not been able to benefit fully from trade opportunities due to the detrimental effects of exports instability that are as a result of both price instability of primary products in the international market and the resulting fluctuations of export proceeds in
domestic economy. The importance of trade cannot be gainsaid, since no modern society can live in isolation. Nigeria depends on foreign trade to meet many of its needs, although in recent years it has achieved a healthy trade surplus. In 2003 exports amounted to $24.1 billion, while imports were $15 billion. The volatility of the global oil market and changes in fiscal and import policies cause large year-to-year fluctuations in the balance of trade.
This study has identified benchmark, rules or policies that will help foster development and increase Nigeria‘s opportunities to take advantage of the various benefits associated with international trade.
RECOMMENDATIONS
Judging from the result of the finding, the following recommendation could be considered.
- Active exchange rate policy that avoids over-valuation or excessive depreciation of the Naira and ensures competiveness of tradable goods, relative price stability or low inflation as well as avoiding inconsistent fiscal policies should be designed.
- Technological change is a critical factor for growth that stems from Research and Development (R&D) and from innovative activities. Managing innovations better than one‘s competitors is one of the most important objectives of any modern economy that wants to grow, survive and thrive. Public policy should be designed to encourage success in managing innovation than in adopting the right capacity decisions from already known technological possibilities.
- Policy should be designed to strengthen manufacturing through tax incentives and infrastructure development by way of public-private sector partnership. Non-tariff barriers to support domestic manufacturing should be tenured, targeted and reviewed from time to time.
- Policies should be aimed at addressing some of the constraints to private business in Nigeria including poor infrastructure (electric power supply, public water supply, roads, railway, ports, airports, etc), bureaucratic customs system, dangerous security situation, for instance the Niger Delta scenario, poor telecommunication, etc should be reviewed and consistently improved.
- Since high productivity and competitive labour costs are based on literacy, general and trade education and those technical skills most in global demand. Consequently, education and training systems should be focused on relevant skills particularly those needed in a modern society
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