Trade Liberalization and Agricultural Productivity in Nigeria
Chapter One
Objective of the Study
The broad objective of the study is to analyze the contribution of trade liberalization to agricultural growth in Nigeria. The specific objectives are:
- To find out the effect of trade openness on agricultural growth in
- To establish the influence of tariffs on agricultural growth in
- To establish the effect of foreign direct investments on agricultural growth in
- To highlight the profile of pre and post liberalization Agricultural growth rate in Nigeria.
CHAPTER TWO
LITERATURE REVIEW
Introduction
This chapter provides an overview of the concept of agricultural trade liberalization, highlights the agricultural policies in Nigeria and the empirical link between trade liberalization measures and Agricultural growth in Nigeria. The chapter also presented a conceptual framework that reflects the hypotheses formulated in the study.
Concept of Agricultural Trade Liberalization
Trade liberalization in agriculture is epitomized by removal of trade barriers in international trade. The trade barriers are meant to protect domestic agricultural production from the competition imposed by foreign producers (Hoekman & Nicita, 2011). In the past, there was a lot of emphasis on restrictive trade policies especially by countries that were developing (Hur and Park, 2012). However, over the last three decades, there has been a paradigm shift in thought mainly due to structural and financial crises. The World Bank and IMF aided these countries on the condition that they embrace liberalization strategies (Rose, 2007). The problem was that there was no equal playing field hence the newly industrialized countries at the time benefited more from global trade liberalization to the extent of changing their status to developed economies. Despite the fact that, the economic depression and the two World wars acted against trade liberalization, strategies among the developed countries facilitated further liberalized trade policies (Montalbano, & Nenci,2014). Evidently, tariff and non-tariff measures were predominant during the previous years’ albeit at the moment, elimination of trade barriers is the state of affairs for both developed and developing nations.
Agricultural Policies in Nigeria
The post-independent agricultural policy of 1966 to 1970 laid much emphasis on the diversification of the economy from being predominantly agriculturally based. Focus was on policy instruments such as tariff protection, quotas and subsidies. However, these interventions resulted in a declined growth in agriculture with the manufacturing sector receiving protection from foreign competition. Consequently, the country realized a deterioration in the ratio of exports prices relative to imports between the agricultural and non-agricultural produce (Sharpley, 1984). Nonetheless, real GDP in agriculture grew over 40% during the same period despite the unfavorable policy environment. In fact, Nigeria is yet to realize its highest ever real GDP growth rate in agriculture that stood at 19.048% in 1966.
In the post liberalization period of 1980 to 2017, the Nigerian government has endeavored to ensure that producers are the biggest beneficiaries of the returns to the agricultural sector. This has been characterized by government involvement in setting producers’ and input prices. A good case example is price stabilization for maize through fixing the purchasing price for maize and the importations by the National Cereals and Produce Board for the purpose of gain reserve. There is also distribution of both seeds and fertilizers by government. Nonetheless, the implementation of these measures poses a challenge since the intended beneficiaries specifically producers rarely benefit from this endeavor. In recent times, efforts towards regional cooperation among East African countries has facilitated the free movement of agricultural produce in the region. However, the recurrent droughts especially in the North Eastern region of Nigeria which has brought about food shortage has led to import bans specifically on maize in attempts to protect domestic industries and attain national food security (Resnick, 2004). Such efforts have been detrimental to trade in agriculture as the neighboring countries tend to apply similar measures to protect their agricultural sector. In light of the foregoing, interventions by government have mainly been on the premise of ensuring that there are input subsidies, short term import tariff reduction and support from foreign aid to sustain the agricultural sector.
Empirical Review
Trade openness on Agricultural Growth
Trade openness discloses the intensity of both trade regulations and restrictions by a given country to other global trade partners (Gulzar, 2016). As evidenced earlier, trade openness has been at the forefront of agricultural growth strategies in both the rich and developing countries. Several empirical works have addressed the contribution of openness to trade on the growth in agriculture. From a global outlook, opening up trade in agriculture has far-reaching implications especially for Sub-Saharan countries. In a study by Nuetah, (2018), it was established that liberalizing agricultural trade in both the European Union and United States negatively impacted Sub-Saharan countries that were beneficiaries of trade preferences. In fact, the prices of commodities that were being imported by Sub-Saharan countries increased substantially while commodity exports from Sub-Saharan Africa fetched lower prices in the global market. Consequently, countries that were net food importers were exposed to high import bills which led to welfare losses. The situation was also worsened for sugar exporters that were beneficiaries of preferential trade agreement in both Europe and the USA. The implication is that Sub-Saharan countries were net losers of liberalized trade in both the Americas and Europe. This is linked to the fact that countries in Sub-Saharan Africa lack the capacity to compete favorably with other economies that have mechanized their agricultural processes and do not solely rely on agriculture as a driver of the economy.
CHAPTER THREE
RESEARCH METHODOLOGY
Introduction
This chapter covers the research methodology that guides the study in addressing the formulated objectives and hypotheses. It entails the empirical model, methods, source of data and measurement, diagnostic tests and cointegration analysis.
Methodology and Research Design
The methodology is quantitative. Building from the reviewed literature, the study incorporates econometric time series design. The approach was selected because the variables of interest cover a 37-year time period from 1980 to 2017. The Auto Regressive Distributive Lag Bounds test is the method used to ascertain trade liberalization effect on the subsequent growth in agriculture.
Empirical Model
Trade liberalization effect on growth in agriculture was established with time series data. To begin with, stationarity was tested with Augmented Dickey Fuller test. Before running the Auto Regressive Distributive Lag Bounds test, the study assessed if the variables met the assumptions of the model. ARDL Bounds test followed to establish whether the variables of interests exhibited cointegration. After testing cointegration and the existence of it thereof, ARDL and error correction model are estimated.
CHAPTER FOUR
DATA ANALYSIS, PRESENTATION AND DISCUSSION
Introduction
The main objective of the study is to critically analyze the contribution of trade liberalization to agricultural growth in Nigeria. The Auto Regressive Distributive Lag Bounds test was the method used to address the objectives of the study. The results presented here are organized under four key sections: descriptive statistics, diagnostic tests, ARDL Bounds test of cointegration and the error correction representation of the ARDL model.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
Introduction
This chapter presents the summary of the findings, conclusion and recommendation of the study. The recommendations are made in relation with the conclusion of the study while recommendation for further studies are essential for the extension of the study.
Summary of Findings
The primary objective of the study was to critically analyze the contribution of trade liberalization to agricultural growth in Nigeria. The study period was between 1980 and 2017.The study utilized data from the World Development Indicators. Basing on the findings in the previous chapter, the net inflows of investment was at 0.731% while domestic credit had a cumulative mean of 37.163. Tariffs averaged 6.226 with the least being 0.69 in 1980 and the highest 14.489 at the turn of the new century. Besides, inflation was at a mean of 10.6547 with real GDP agriculture averaging 3.716%.
Furthermore, after highlighting the profile of trend in agricultural growth, trade openness, FDI and tariffs, diagnostic tests were performed. To start off, normality test indicated that the assumption of normality was met. Besides, there was no presence of heteroscedasticity. As well, there was no serial correlation as indicated by the Breusch Godfrey test. In addition, the ADF unit root test indicated that FDI, domestic credit, inflation and real GDP agriculture were stationary at level. However, trade openness and tariffs were stationary after the first difference. There was no presence of I (2) variables hence the assumption of constant variance, normality, no serial correlation and stationarity were met for the ARDL model.
The results of the bounds test indicated that there was cointegration hence the decision was made to estimate both the ARDL and ECM. Trade openness had a positive and significant impact on agricultural growth in the long- run though FDI had a negative implication on the growth in agriculture. Nonetheless, tariffs exhibited no effect on the growth in the agricultural sector. The first and fourth lag of FDI were key in facilitating growth in agriculture. Nonetheless, decline in agricultural growth was associated with the lag of trade openness. Finally, the first, second and third lag of inflation were associated with declined agricultural growth.
Conclusion
Trade openness is key in enhancing agricultural growth in Nigeria. As Nigeria opens its borders for easy movement of agricultural produce, there is resultant increase in outputs for the domestic and foreign markets leading to overall increase in agricultural growth. Moreover, trade openness offers more opportunities for farmers in terms of diversifying their agricultural produce which in turn increases their income. Though trade openness has exhibited a positive influence on agricultural growth, it requires trade policies that are on the premise of creating favorable conditions for agricultural trade especially for the domestic producers. This is because it is through trade openness that Nigerian farmers can benefit from technology transfers and investments in agriculture.
Furthermore, FDI is responsible for the decline in agricultural growth in Nigeria. Specifically, the net inflows of investment are directed to other sectors of the economy instead of agriculture. As such, there is a possibility that FDI contribution to agricultural growth is relatively low compared to the inflows in sectors such as the manufacturing and service. The resulting outcome is that farmers are less likely to benefit from technology transfer and the advent of new processes in agriculture.
Finally, the influence of tariffs on agricultural growth was not significant. This could be because despite Nigeria making commitments to liberalize its trade, the implementation of the policies on free trade was not forthcoming especially in the 1980s. Besides, the tariff rates were imposed on specific goods while for other goods there were import controls hence tariff rates could not sufficiently influence agricultural growth. It would therefore be plausible for future scholars to establish if the effects of tariff rates on agricultural growth appear in the periods before the liberalization of trade in Nigeria.
Recommendations
Trade openness is associated with the improvement in agricultural growth. Therefore, there is need for stringent implementation of liberalized trade policy with the goal of liberalizing further trade in the agricultural sector. Moreover, since domestic producers will be facing competition from foreign producers, it is utmost necessary for the Nigerian government to provide financial aids and inputs to domestic producers so that they have a level playing field in the global agricultural trade.
Furthermore, the negative influence of FDI on agricultural growth is evident in the study. There is thus need for the Ministry of Agriculture to create a conducive environment for investment in Agriculture and link up domestic farmers and investors so as to boost the production levels in agriculture. Also, since FDI is mostly linked with other sector of the economy, agriculture could benefit from FDI by promoting mechanized agriculture with special emphasis on local production.
Policy Implications
The increasing uncertainties of agricultural production factors requires that Nigeria adopts policies that are robust enough to enhance the flexibility of the sector especially as it is important to both its overall economic performance and the social wellbeing of the citizenry. Liberalization offers Nigeria the best set of tools to accomplish this feat because of its ability to harness and leverage both capital and labor in such a way as to create a mix that encourages high production actively.
Consequently, the government needs to work on creating an environment that encourages smallholder participation in intensive agriculture by doing away with restrictive fees and tariffs on inputs. Emphasis should also be on exposing local producers to financial networks that are willing and interested in investing in their agricultural enterprises directly as opposed to the current case where foreign investment targets other sectors primarily.
Further Research Recommendations
The study has contributed immensely to the methodology through the user of the ARDL model which is a better alternative for analyzing the contribution of trade liberalization to agricultural growth in Nigeria. Though the study has sufficiently highlighted the effect of trade liberalization on agriculture, there are a wide array of research areas that emerge from the findings of the study:
- Since tariffs had no significant influence on agricultural growth, future scholars could explore the effect of non-tariff barriers on agricultural growth in Nigeria. Moreover, there is need to extend the study period to include both the pre and post liberalization period while conducting the ARDL Bounds test of
- Future research focusing on trade liberalization could incorporate the use of other measures of trade openness such as trade distortion indices and tariffs on imports to assess how trade openness influences agricultural growth in the East African region.
- Future scholars could also analyze the effect of trade liberalization on agricultural growth by laying emphasis on specific industries in agriculture. This would offer better insights to policies aimed at enhancing growth in Moreover, the effectiveness of protectionist policies that have been widely applied in agriculture would be assessed.
