IMPACT OF TRADE LIBERALIZATION ON THE ECONOMIC GROWTH OF NIGERIA

CHAPTER ONE

INTRODUCTION

1.1. Background of the Study

Trade liberalization is one of the most controversial policies in international economics and finance. Copious of arguments have been put forward about if free trade and reduction of trade barriers will help the economy or not (Agbarakwe, 2023). Those in favour of the policy believe that it can stimulate economic growth of African economies while others maintained that trade liberalization may not provide positive contribution to long run growth of African economies. This study adopts the ordinary least squares in Estimating (Ajayi and Araoye, 2019). Trade liberalization is defined as the reduction or complete removal of trade barriers by a country or countries involved in foreign trade (Ajayi and Araoye, 2019).. The main reason why countries adopt trade liberalization is to promote free trade by eliminating all restrictions and barriers to trade. This, it is believed, will ultimately enhance economic growth by capturing the static and dynamic gains from trade through a more effective allocation of resources; greater competition; an increment in the flow of knowledge and investment and of course, a faster pace of capital accumulation and technological progress. The outward-oriented strategy adopted by Nigeria was chiefly to boost exports by cutting down all restrictions, exchange rate control and breaking apart of some of the marketing boards (Bredino, Fiderikumo, and Adedoyin, 2018).

Besides, Nigeria had undergone foreign trade liberalization through the decrease in both duties and non-tariff barriers. The aim was to promote economic growth by increasing her export of goods and compete with other nations globally. In the opinions of CBN (2020), trade exposes domestic firms to best practices of foreign firms and to the demand of discerning customers and encouraging greater efficiency. Trade, to them, gives firms in the domestic economy access to improved capital inputs such as machine tools, boosting productivity and providing new opportunities for growth to developing countries. International trade, generally deals with economic and financial interdependence among nations: it is part of our daily life and it plays a vital role in the shaping of economic and social performance and prospects of countries around the world, especially those of developing countries (CBN 2020). He reiterated however that no country has grown without trade but the contribution of international trade to any economy depends to a great extent on the context in which it works and the objective it serves.

An assessment of the impact of trade policy reforms on economic growth requires an understanding of the notion of trade liberalization (Claire and Joseph, 2021).. The hypothesis on trade policy reforms includes several distinct concepts of “trade liberalization. It encompasses both openness and changes in trade orientation. Openness is an economy wide measure, whereas trade orientation is an industry specific measure. For developing countries like Nigeria, a more open international trade system means greater opportunity to earn foreign exchange through exports since the availability of foreign exchange is imperative for the purchase of imported capital goods and raw materials necessary for rapid growth. The trade policy reforms that have been adopted by the Nigerian government over the years include the partial abolition of import license scheme, granting of special tax incentives and tax holidays to enable local industries build up adequate funds for expansion and to encourage firms invest in economically disadvantaged areas, reduction of corporate income tax rate and introduction of tax-free dividends for foreign persons and to encourage local research and development (Claire and Joseph, 2021).. Other reforms include the promulgation of export incentives decree in which various incentives to enhance export promotion were stipulated, establishment of export credit guarantee and insurance scheme to assist Nigeria companies compete effectively in the international market, government grant of 140 percent tax relief to firms in respect of research and development of raw materials, export stimulation loan scheme to provide for foreign producers that require imported inputs essential to the production of export products, opening of domiciliary account to keep firms’ export earnings in foreign currencies, government institutional supports through the establishment of industrial development coordinating committee, data bank, raw material research and development council, project development agency, federal institute of industrial research, export processing zones, Nigeria investment promotion council, simplification of industrial licensing, deregulation of the exchange market and devaluation of the naira (Claire and Joseph, 2021)..

It is assumed that trade liberalization may affect economic growth of Nigeria.Economic growth refers to an increase in the value of goods and services produced in an economy over a period of time, usually one year. It is a measure of the performance of the real sector of the economy. The real sector is often regarded as the engine of growth and economic development. largely due to its pivotal role in broadening the productive base of the economy, enhancing its revenue earning capacity, reducing the growth of unemployment and poverty as well as checking rural-to-urban migration. (Claire and Joseph, 2021). Most of scholars in their work measured economic growth with gross domestic product. Gross domestic product is defined as monetary value of good and service produce in a particular country and in a particular year.. Hence, the study will examines the impact of trade liberalization on economic growth of Nigeria

1.2 Statement of the Problem

It has been stated theoretically and proven empirically that trade liberalization contributes to the level of the economy. This is because in a competitive environment prices get lower and the products become diversified through which consumer surplus emerges. Gains from specialization and efficiency are also further advantages of economic openness. Hence it is quite reasonable that economies generally desire to be economically open (Dabel, 2021)

Nigeria have been involved in immense economic reforms for the past few decades in order to remove or substantially reduce market distortions created mainly by government intervention in the productive sector since independence. Their ability to succeed will depend on the political will to allow private firms to play their role as the engine of growth in their economies but only when the proper attention and encouragement has been given to the private sector to ensure growth, sustainability and the ability to export. Reform programmes come in sharp contrast of existing economic policies that were pursued after independence. The institutions necessary to aid the success of trade liberalization and ultimately growth/development are unavailable or are deficient. Having a vast population (Echekoba, Okonkwo, and Adigwe, 2022).

Nigeria has not utilized it in achieving this goal of development but however it has brought about a disequilibrium i.e. widening the gap between the rich and the poor. Since there are no functional and corrupt-free institutions in the country, corruption does not seem but has vehemently proven to have eaten deep into the bone marrows of the economy. However there exist many different types of institutions (social arrangements, laws, regulations, enforcement of property rights, etc.). The issue is about what specific types of institutions are important for the country to benefit from openness (Echekobaet al , 2022)..

Another constraint is fiscal and monetary policy indiscipline. Most times policies and investments made are not profitable and amount to waste of resources. International trade is expected to be beneficial to participants (in form of lower prices, variety of products etc) to firms and businesses (as studies have it that firms exposed to the world’s best practices demonstrate higher productivity through many channels such as learning from these best practices thus creating new products and processes in response to this exposure). In the case of Nigeria, it has left our industries in a state of comma as domestic infant industries are destroyed by competition with already established international firms without bringing about a creation of new ones. Hence all these in addition to both fiscal and monetary indiscipline have made the reverse the case in these years (Echekoba, et al , 2022)..

Furthermore the problem of hoarding and secrecy abound. The major aim of trade liberalization is to open up economies so that countries can learn from themselves to improve production and output. However most developed countries are not truly willing to expose their methods of production and technologies simply for the fear of domination. Majority of the countries engaging in trade hoard important commodities which are needed in Nigeria; yet they get every single thing they need from Nigeria (Elijah, and Musa2021).

This therefore results in a situation where trade is liberalized only in words but not in action. The developing countries specifically Nigeria learn close to nothing when it comes to improved ways of doing things. Instead we are used as a dumping ground by other countries(Elijah, and Musa 2021). This research work is to assess the impact of trade liberalization on the economic growth of Nigeria.

1.3. Objectives of the Study

The broad objective of the study is to examine the impact of trade liberalization on the economic growth of Nigeria. Specific objectives are;

1. To ascertain the impact of foreign direct investment on gross domestic product in Nigeria

2.To determine the impact of trade openness on gross domestic product in Nigeria

3. To examine the impact of exchange rate on gross domestic product in Nigeria

4.To ascertain the impact of balance of payment on gross domestic product in Nigeria

1.4 Research Questions

Based on the specific objectives the following research questions will be raise

1. To what extent doesforeign direct investment on gross domestic product in Nigeria?

2.To what extent doestrade openness impact on gross domestic product in Nigeria?

3. To what extent does exchange rate impact gross domestic product in Nigeria?

4. To what extent doesbalance of payment on gross domestic product in Nigeria?

1.5. Research Hypotheses

Back To ECONOMICS Topics and Materials »

If you have any Project Material or E-Book(s) and you want us to help you market it on our Website and you will earn money from sales,

Submit it Here!

RECENT BLOG POSTS
(Latest News Updates, Tutorials, ETC)

2025 NECO AGRICULTURAL SCIENCE QUESTIONS AND ANSWERS
2025 NECO Agricultural Science Questions & Answers (Essay and Objectives answers) ...

Read More �

2025 NECO FURTHER MATHEMATICS QUESTIONS AND ANSWERS
2025 NECO Further Mathematics Questions & Answers (Essay and Objectives anwsers) ...

Read More �

2025 NECO CHRISTIAN RELIGION STUDIES QUESTIONS & ANSWERS
2025 NECO Christian Religion Studies Questions & Answers, crk, crs, irs, irk, neco, neco 2025, ...

Read More �

HOW TO CONNECT WHM AND CPANEL TO WHMCS
2025 NECO ECONOMIC ESSAY AND OBJECTIVES QUESTIONS AND ANSWERS...

Read More �

2025 NECO CIVIC EDUCATION QUESTIONS & ANSWERS
2025 NECO Civic Education Questions and Answers (ESSAY AND OBJECTIVES) ...

Read More �

FEDERAL POLYTECHNIC UGEP ADMISSION SCREENING FORM 2024/2025
This is to inform the general public that the registration for 2024/2025 academic session Post Unified Tertiary Matriculation Examination (Post UTME) of Federal Polytechnic Ugep will commence on Monday 2nd September, 2024 and end on Monday 30th September, 2024....

Read More �

WHY DOCTORATE THESIS RESEARCH?
Why Doctorate Thesis research: The central purpose of a PhD thedis is to produce new, original insights that advance the body of knowledge in a particular academic discipline...

Read More �

HOW TO MAKE MONEY WITH E-MATERIAL PROGRAMME
In this programme, you can earn as much as 60% of the value of the material while we help you promote the material for sale. This is just an added way of making money with your material and does not stop you from your other marketing campaigns....

Read More �

HOW TO INSTALL VTU PORTAL CREATING SOFTWARE
Below are the steps to follow in Installing VTU Portal creating software. Download VTU Portal Creator from the purchase link and upload it to your Cpanel directory. Login to your site cpanel e.g. www.yoursite.com/cpanel. Open File manager ......

Read More �

HOW TO CREATE YOUR OWN VTU WEBSITE FROM SCRATCH
Below is a list of things you will need to create your VTU website from scratch: A Domain Name, A Web Hosting Account/Space, A Website Template or Wordpress, A Text Editor, A Laptop, Desktop, or Smart Phone, A VTU Portal Creating Software, A reliable internet connection, A VTU business Account...

Read More �