1.1 BACKGROUND TO THE STUDY
policy is one of the macro-economic instruments with which nations (including
Nigeria) do manage the economics. It entails those actions initiated by the
monetary authorities which aim at influencing the cost and availability of
credits (Wrightsman 1996). It covers gamut of measures or combination of
packages intended to influence or regulate the volumes price as well as
direction of money in the economy.
Specifically, it permeates all the deliberate effort by the monetary
authorities to control the money supply and credits conditions for the purpose
of achieving deserve macroeconomic objectives, Ajie and Nenbee (2010).
Chamberlain and Yueh (2006) adds that the supply or price of money-may exert a
powerful influence over the economy. According to Nnana (2006), generally,
macroeconomic policies in developing countries are designed to stabilize the
economy, stimulate growth and reduce poverty. The primary goal of monetary
policies in Nigeria has been the maintenance of domestic price and exchange
rate stability since it is critical for the attainment of sustainable growth
and external sector viability (sanusi, 2012).
Economists have long been interested in
factors which cause different countries to grow at different rates and achieve
different levels of wealth. One of such factors is foreign trade. Nigeria is
basically an open economy with international transactions constituting a
significant proportion of her aggregate output. To a large extent, Nigeria’s
economic development depends on the prospects of her export trade with other
nations. Foreign trade provides both foreign exchange earning and market
stimulus for accelerated economic growth (Obadan, 2004).
Several countries have achieved growth
an export-led strategy. Small economies in particular have very little
opportunity to achieve productivity and efficiency gains to support growth.
Without tapping into large market through external trade, Nigeria’s relatively
large domestic market can support growth but alone cannot deliver sustained
growth at the rates needed to make a visible impact on poverty reduction. Hence
Nigeria has continued to rely on foreign market as well (World Bank, 2002).
Many economists generally agree that
openness to international trade accelerate development. The more rapid growth may
be a transition effect rather than a shift to a different steady states growth
rates clearly, the tradition takes a couple of decades or moreso, that it is
reasonable to speak of foreign trade openness accelerating growth rather than
merely leading to a sudden one time adjustment in net income (Dollar and Kraay,
In Nigeria, the achievement of this
objectives are predicated on the stance of fiscal monetary policies. Monetary
policy formulation is based on the duo of money supply and credit availability
in the economy. In ensuring monetary stability, the central bank through the
deposit money banks implements policies that guarantee the orderly development
of the economy through appropriate change in the level of money supply. The
reserves of the banks are influenced by the central bank through its various
instruments of monetary policy. These instruments include the cast reserve
requirement, liquidity ratio, open market operations and primary operations to
influence the movement of reserves (Ajir and Nenbee, 2010 and Masha et al,
Sequel to our discussions so far, one
could be induced to conclude that the use of monetary policy in Nigeria seems
not to attract the desired level of economic stability. This conclusion follows
the dismal performance of the economy in recent years. Little wonder Donli
(2004) writes that the last two decades witnessed series of reforms armed at
the revitalization of the Nigeria economy owing to series of crises that
influence the growth of the economy during this period. The problems were seen
to be a direct derivative of structural imbalances in our economy system. The
imbalance started right from colonial era nurtured by inappropriate policies
after independence in 1960, and reinforced by the wind face gains form petroleum
in the 1970s.
Donli (2004) further contends that these
structural defects consisted or undiversified monolithic and monoculture
production bases, undue reliance on agricultural products from 1973. The
outcome of those events was that the growth process relied heavily on external
factors instead on the internal ones. However, of all the independences, the
exclusive reliance on petroleum turned out to be the must devastating to the
economy. The dismal economic outlook in Nigeria above dismal economic outlook
in Nigeriasaa above desires investigation into whether or not monetary prolicy
as claimed by the monetarists impact on Nigeria’s esdeconomic stability and
1.2 STATEMENT OF THE RESEARCH PROBLEM
Monetary policy as a technique of
economic management to bring about sustainable economic growth and development
through foreign trade has be the pursuit of nations and formal articulation of
how money affects economic aggregates dates bank the Adams Smith and water championed
by the monetary economists. Since the expositions of the role of monetary
policy in influencing macroeconomic objectives like economic growth price
stability, equilibrium in balance of payments and host of other objectives,
monetary authorities are saddled the responsibility of using monetary policy to
growth their economies.
In Nigeria, monetary policy has been
used since central Bank of Nigeria was saddle the responsibility of formulating
and implementing monetary policy by Central Bank act of 1958. this role has
facilitating the emergence of active money market where treasury bills, a
financial instrument used for open market operations and raising debt for
government has grown in volume and valued becoming a prominent earning asset
for investors and source of balancing liquidity in the market. These have been
various regimes of monetary in Nigeria some times, monetary policy is tight and
at other times it is loose mostly use to stabilize price.
The economy has also witnessed times of
expansion and contraction but evidently, the reported growth in foreign trade
has not been a sustainable one as there is evidence of growing poverty among
the populaces. The question is, could the period of growth in foreign trade be
attributed to appropriate monetary policy? And could the periods of economic
down term be blamed on factors on other than monetary policy ineffective? What
measures are to be considered if monetary policy would be effective in bringing
about sustainable economic growth and development?
1.3 OBJECTIVES OF THE STUDY
The main objective of the study is to
investigate the impact of monetary policies on foreign trade in Nigeria economy
and how it affect economic development.
Specifically, the study seeks to:
To examine the impact of monetary
policies on foreign trade.
To examine the hindrances to monetary
policies operations in Nigeria.
To proffer suggestions on how monetary
policies can be managed for better contribution to foreign trade and the
1.4 RESEARCH QUESTIONS
What impacts do monetary policies have on foreign trade in Nigeria?
How are monetary policy operations hindered in Nigeria?
How can monetary policies be managed to positively influence foreign trade in
1.5 RESEARCH HYPOTHESES
Ho: A monetary policies have no significant
impact of foreign trade in Nigeria.
A monetary policies has significant impact on foreign trade in Nigeria.
A monetary policies has no significant impact on economic development in
Hi: A Monetary policies has significant impact
on economic development in Nigeria.
1.5 SIGNIFICANCE OF THE STUDY
Necessity for a better economy and the undeniable link between the
economy of a nation and its foreign trade motivates the steps taken for the
development of a better and sound international trade relationship. In developing countries like Nigeria,
different steps have been towards the achievement of a desired balance of trade
it the desired destination has not been achieved.
This Study focus mainly on how monetary policies can be used to
regulate foreign trade in Nigeria and the impacts it has on the Nigeria
economy, both positively and negatively. This study will be useful to policy
makers, economists and to several individuals, who are stakeholder, when it comes
to foreign or international trade. The study will also serve as an introductory
phase to others who want to do a further research work in this area.
1.6 SCOPE AND LIMITATION
research work will be centered on the beginning structure, operations and
objectives of monetary policies on foreign trade market management in
determining the foreign trade in Nigeria. This study will be particularly
limited to pre-oil and post oil boom in the mid 1981, so as to be able to make
rational comparison between. Historical and current article like unpublished
project, journals and text books of different author. The publication data
ranging from 1981 up till 2010.
Finance is one of the element that
assist a good research of financial constraint created difficulties in the
process of this research work however, it did not hinder the research. Chapter
two is basically literature reviews limited book were found to accomplish this
work. Time frame within which the research must be carry out I s another
1.6 DEFINITION OF TERM
Monetary policy can be defined as the measures or combination of measures
designed to influence or regulates the volume price and direction of money and
credit. [Nwankwo, 1979]. It can as well be seen as the management of the
expansion and contraction of the volume of money in circulations for the
purpose of achieving certain declared national objectives (Uzoaga, 1981). The
stock of money is managed through expansion (lowering the cost and
reducing/increasing the quantity) of money depending on the macroeconomic
policy target. Economists agree that monetary policy entails the process of
determining and varying the cost and availability of credit. They are also
unanimous on the fact that the purpose is to enhance monetary stability
Refers to the increased every time of an economy’s capacity to produce those
goods and services needed to improve the well-being of the citizen in
increasing number and diversity. It is the study process by which productive
capacity of the economy is increased every time to bring about rising level in
Economic development: Economic
development is a multidimensional process involving the provision of basic
needs, acceleration of economic growth reduction of inequality and
unemployment, eradication of poverty as well as changes in attitude institution
and structure in the economy.
Foreign trade is the trade between two
or more countries; it involves trade outside the national boundaries of a
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