ABSTRACT
This study was
intended to examine if international trade has any impact on Nigeria’s economy
growth and to see if it impacts positively or negatively. This
study was guided by the following objectives; To examine the factors that hinders the success
of international trade in Nigeria, To examine also the trade policies i.e.
restrictions Nigeria has imposed on international trade and how favorable such
policies has been, To examine the impact of the exchange rate system in
Nigeria, To make necessary policy recommendations based on the findings of the
study.
In other to
adequately capture and empirically investigate and analyze the impact of
international trade on the economic growth of Nigeria, a multiple regression
econometric model was used. In the investigation on the impact of international
trade on economic growth, a unit root test was carried out on the data using
the Augmented Dickey Fuller (ADF) test to know if the data are stationary, if
integrated at order zero (0), if integrated at order one (1), if integrated at
order two (2). Secondary data gotten
from secondary sources particularly from the Central Bank Of Nigeria
statistical bulletin and the National Bureau of Statistics were
used and data was analyzed using the regression statistical tool at 5% level of
significance which was presented in frequency tables and percentage.
The study findings
revealed that National savings plays an important role in the process of economic
growth as it provides for investment which in turn creates employment
opportunity for its labour force, thus increasing their income and aggregate
demand and thus leading to economic growth. In our estimated model, we found
national savings as positively influencing economic growth. Trade openness in
any economy is as a result of globalization. Labour productivity also
determines the growth of any economy.
This study is
useful to researches as it provides an econometric evidence of the impact of
international trade on the growth of the Nigerian economy.
TABLE OF
CONTENTS
Title Page - - - - - - - - - i
Approval Page - - - - - - - - ii
Declaration - - - - - - - - iii
Dedication - - - - - - - - - iv
Acknowledgement - - - - - - - v
Abstract - - - - - - - - - vi
Table of Contents - - - - - - - vii
CHAPTER
ONE – INTRODUCTION
1.1 Background of the Study - - - - -
1.2 Statement of General Problem - - - -
1.3 Objective of the Study - - - - - -
1.4 Research Questions - - - - - -
1.5 Hypothesis
- - -
- - -
- - -
1.6 Significance of the Study - - - - -
1.7 Scope of the Study - - - - - -
1.8 Definition of Terms - - - - - -
CHAPTER
TWO – REVIEW OF RELATED LITERATURE
2.1 Introduction - - - - - - - - -
2.2 Theoretical Framework - - - - - - -
2.3. Conceptual Framework - - - - - - -
2.4. International trade and economic growth- - - -
2.5 Empirical Literature- - - - - - - - -
2.6 Nigeria trade performance- - - - - - -
2.7 Nigeria basic trade profile- - - - - - - -
2.8 Nigeria’s
economic performance- - - - - -
2.9 The effect of exchange rate policies and its
reform on Nigeria’s trade balance- - - - - - - -
- - -
CHAPTER THREE – THEORETICAL
FRAMEWORK AND MODEL SPECIFICATION
3.1 Theoretical framework- - - - - - - -
3.1.1 Neo-classical growth theory- - - - - - -
3.1.2 Endogenous growth theory- - - - - - -
3.2 Model specification- - - - - - - -
-
3.3 Method of estimation- - - - - - - -
3.4 Sources of data - - - - - - - - -
CHAPTER FOUR
– DATA PRESENTATION AND ANALYSIS
4.1 Introduction - - - - - - - - -
4.2 Trend analysis - - - - - - - - -
4.3 The unit root tests of variables- - - - - - -
4.4 Test of co-integration- - - - - - - -
4.5.1
Presentation of regression result- - - - - -
4.5.2 Interpretation of regression result- - - - - -
4.6 Policy implication of the result - - - - - -
CHAPTER FIVE – SUMMARY, POLICY RECOMMENDATIONS AND CONCLUSION
5.1 Summary- - - - - - - - - -
-
5.2
Policy recommendation- - - - - - - -
5.3 Conclusion- - - - - - - - - -
Bibliography
Appendix i
Appendix ii
References
CHAPTER ONE
INTRODUCTION
1.1.
BACKGROUND
TO THE STUDY
In our economy today we are privileged to make use of the advanced
world countries’ products having risen from improved or advanced technologies
of the world. We even eat their type of food, wear their type of cloth, drive
in their kind of cars etc. without having to do all these in their country.
Also we enjoy the best of products from neighboring countries without having to
travel there to get or use it. All these are made possible by international
trade. International trade has a direct effect on the economy of any country as
the country sees the need for the exchange of ideas, products and technologies.
This effect could either be positive or negative at each given point in time.
International trade can be traced back to the need for exchange which
evolved from the barter system to the money system. International trade became
popular with the advent of the colonial rule that brought their wares and made
Nigerians their middle men (Nick 2008). The classical and neo-classical
economists have attaches so much importance to international trade in an
economy’s growth that they even regard it as an engine of economic growth
(Jhingan 2006) and so we can say that the performance of any economic in terms
of growth rate of output and per capita income is not only based on the
domestic production and consumption activities but it can also be based on the
international transaction of goods and services. One of the major reasons why
countries engage in international trade is to obtain the goods and services
which they cannot produce in the home country or commodity which its cost of
production is very high. To solve this problem, the classical economist, David
Ricardo suggested that countries should specialize on the production and
exportation of goods whose cost of production is low and import the product
whose cost of production is high for the country. This is what Ricardo referred
to as ‘the theory of comparative advantage’.
From the little write up above, we can see that international trade is
actually a catalyst or speed up for economic growth and thus international
trade has been of a great concern to policy makers in the country. For
developing countries like Nigeria, its participation in international trade is
high as most of the essential facilities for growth e.g. capital goods,
technical know-how, raw materials are entirely imported because of inadequate
domestic supply of these goods. Increased domestic demand sure reduces the
expansion of exports, thus to enhance export capacity, improved technology must
be imported which in turn raises the demand for imported goods. There is every
tendency that import would be raised far above export which would result to an
unfavorable balance of trade. Prolonged pressure on the country’s balance of
payment shrinks economic growth and so appropriate economic policy measures
have to be put in place to streamline international trade for the achievement
of a desirable economic growth.
The Nigerian economy has overdependence on the capital intensive oil
sector which provides about 15% of the GDP, 95% of foreign exchange earnings
and about 75% of the government revenue. Nigeria which used to be a large net
exporter of food now imports some of its food product as the agricultural
sector could not cope with the increasing population growth. The overdependence
on the oil sector has not only led to unbalanced trade but has resulted to
economic fluctuations and this has been a major challenge for Nigeria. Even the
Structural Adjustment Programme of 1986 whose major aim was to diversify the
productive base of the economy could not achieve this till date as we are still
dependent on the revenue accruing from oil produce.
1.2 STATEMENT OF THE PROBLEM
Before Nigeria’s political independence in October 1960, Nigeria was
actively involved in international trade. Nigeria’s main export was primary
agricultural commodities which accounted for 70.8% of the total export and its
relative contribution to GDP was almost 64% during that period. This
agricultural commodity comprises of groundnut, cocoa, palm oil cotton and
rubber. At that time, the oil sector accounted for only 2.6% of the total
export and its relative contribution to GDP was 1.6%. This story is no longer
the same starting from the 1970s. Why? The discovery of oil in commercial
quantities in Olobiri in the year 1956 made Nigeria to become a “hot cake” and
an important player in the world market. In the first half of the 1970s, there
was an increase in the price of oil in the world market which made Nigeria to
experience oil boom. The proceeds from oil were so high and this showed a great
sign to a start of a prosperous economic development in the country. This made
the government’s focus to move from the non-oil sector almost fully to the oil
sector causing other sectors of the economy to suffer setback.
The agricultural, industrial, manufacturing sector’s relative
contribution to GDP and export fell so much as a result of over-dependence on
the oil sector. Nigeria is Africa’s largest producer of crude oil producing
about 2.2 million barrels per day. This has made Nigeria to be the 4th world
exporter of oil and 7th largest producer of oil in the Organization of
Petroleum Exporting Countries (OPEC). In the early 1980s, there was an oil
price shock in the world market which caused an oil glut for Nigeria and since
other productive sectors were abandoned, Nigerian government could not meet up
with the needs of its populace thus resulting to external borrowing. This did
not tell well on the overall welfare of its citizens. Nigeria could be said to be
suffering from the syndrome called “Dutch Disease” as a nation abundantly
blessed with natural resources especially crude oil still have over 60% of her
population still living below the poverty line. Nigeria can also be said to be
suffering from the “Resource Curse Syndrome (also known as the paradox of
plenty)” (Soludo 2005).
This means that countries and regions with an abundance of natural
resources specifically point source non-renewable resources like minerals and
fuels, tend to have less economic growth and worse development outcomes than
countries with fewer natural resources. This was hypothesized for reasons
including a decline in the competitiveness of other sectors caused by the
appreciation of the real exchange rate as resource revenue enter the
economy,volatility of revenue from the natural resource sector due to exposure
to the global commodity market swings government mismanagement of resources, or
weak, ineffectual, unstable or corrupt institutions possibly due to the easily
diverted actual or anticipated revenue stream from the extractive activities
(Auty 1993). With the collapse of the global oil price in 2008, Nigeria was
severely affected by a global economic meltdown. There has been large proceeds
obtained from the domestic sales and export of petroleum product, its effect on
the growth of the Nigeria economy as regard returns and productivity is still
questionable, hence the need to evaluate the relative impact of crude oil on
the economy.
The oil sector
contributes about 11% in 2012 and15% in 2013. This shows that other sectors of
the economy are rising up and contributing immensely to the country’s economic
growth. But still yet it is this oil which constitutes 95% of our export
earnings and 75% of the government revenue. Marco economically, in examining a
country’s economic growth, its external transactions are examined, also the
government expenditure as a result of its revenue is examined. There is a
problem of determining the overall effect of international trade on Nigeria’s
growth. This study helps to address this problem.
1.1 OBJECTIVES OF THE STUDY
The broad objective of the study is;
1.
To
examine if international trade has any impact on Nigeria’s economy growth and
to see if it impacts positively or negatively.
2.
To
examine the factors that hinders the success of international trade in Nigeria
3.
To
examine also the trade policies i.e. restrictions Nigeria has imposed on
international trade and how favorable such policies has been.
4.
To
examine the impact of the exchange rate system in Nigeria
5.
To
make necessary policy recommendations based on the findings of the study.
1.2
STATEMENT
OF HYPOTHESIS
The research hypotheses to be tested in the course of this study are as
follows;
1.
H0: That
international trade does not contribute to the growth of the Nigerian economy
H1: That international trade does
contribute to the growth of the Nigerian economy
2.
H0: Exchange rate in Nigeria does not impact
positive on GDP
H1: Exchange rate in Nigeria does
impact positively on GDP
1.6 SIGNIFICANCE OF THE
STUDY
This study is significant because international trade is important in
any economy as it is seen as one of the engine of economic growth and so it is
important for us to view the ways on how we can maximize the benefits and
minimize the loses from international trade. Also this study will be useful to
policy makers as it gives them an insight of the volume of trade thus assisting
them to make policies which will exert positive influence on the balance of
trade. Also the study is helpful to manufacturers, exporters and importers as
it helps them to be aware of the policies on international trade, exchange rate
and the degree of openness of an economy. The study is useful to foreign
partners as this provides information on our resources and it presents us to
them as an economy who is doing well internationally and this will help increase
foreign investment which will aid economic growth. This study is useful to
researches as it provides an econometric evidence of the impact of
international trade on the growth of the Nigerian economy. Finally the study
would also statistically enrich and add to the existing body of knowledge in
the area of international trade and its contributions to the economic growth of
Nigeria.
1.7 SCOPE AND LIMITATION OF THE STUDY
For us to get a full insight into the study, we have to make use of
economic data ranging from 1980-2012 as we tend to view the era of oil boom,
oil glut, Nigeria’s external trade performance, her economic growth performance
over the years and her recent participation at the world market. This study
will be broad as possible as various articles and journals will be used to
examine the volume of trade, exchange rate, degree of economic openness,
inflation rate and gross domestic product.
A major constraint of this study is the insufficient time involved to
complete the study and the problem of inconsistent and inaccurate data will
give wrong results leading to wrong policy making.