IMPACT OF TRADE OPENNESS ON SECTORIAL COMPOSITION OF GROWTH IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

The evolving global landscape of international trade and economic integration has undergone a profound metamorphosis in recent decades, spurred by the forces of globalization and a fervent advocacy for trade liberalization. This transformative process has compelled nations across the globe to critically reassess their economic strategies and development trajectories (Omoke & Opuala–Charles, 2021). The repercussions of these global economic shifts are particularly conspicuous in the case of Nigeria, a nation widely recognized for its substantial population and abundant natural resources on the African continent.

As highlighted by Oji-Okoro et al. (2018), Nigeria's journey towards economic development unfolds as a complex interplay of opportunities and challenges intricately linked to its engagement in international trade. The shift from a predominantly agrarian economy to one characterized by a burgeoning industrial and service sector has been profoundly influenced by the nation's active participation in the global marketplace. This transformation serves as an exemplar of a broader trend unfolding across numerous developing nations worldwide.

The economic landscape of Nigeria, enriched with natural resources spanning oil, minerals, and a fertile agricultural sector, has been reshaped through a confluence of domestic policy decisions, international trade agreements, and global economic trends. As articulated by Kalu and Agodi (2015), trade openness, facilitated through trade accords, policy reforms, and integration into international markets, stands out as a pivotal determinant shaping Nigeria's economic destiny.

Spanning the late 20th and early 21st centuries, Nigeria's policy framework has undergone evolution, reflecting a synergy of domestic economic imperatives and international considerations. The growth of the Nigerian economy has predominantly hinged on three key sectors: agriculture, manufacturing, and services. According to a 2022 report by the National Bureau of Statistics, the agricultural sector contributed 24.90% to the nominal GDP, witnessing a decrease from the 27.55% recorded in the preceding year. In real terms, the sector's contribution stood at 24.05% in 2022, with severe instances of flooding adversely impacting growth compared to the 3.58% recorded in the fourth quarter of 2021. The manufacturing sector contributed 8.4% to the real GDP, experiencing a decline from 8.59% in 2021, while the services sector contributed 16.22% in 2022, marking an increase from the 15.35% in the previous year.

Given the substantial significance of these pivotal sectors, Nigeria's response to global trade dynamics assumes paramount importance. Its performance in terms of trade openness and the subsequent sectorial composition of economic growth carries implications not only at the local level, influencing the well-being of its citizens, but also on the global stage, affecting its position in the international economic order.

Consequently, this research endeavors to undertake a comprehensive exploration of the intricate nexus between trade openness and the sectorial composition of economic growth in Nigeria. Leveraging an extensive body of empirical evidence and a diverse array of statistical methodologies, this study seeks to elucidate the dynamics of Nigeria's trade landscape, sectorial composition, and their implications for the nation's economic landscape. The overarching objective of this research is to provide invaluable insights for policymakers, economists, and development practitioners concerned with Nigeria's economic development in the swiftly evolving global economic milieu. The nuanced analysis presented in this study aims to contribute to the ongoing discourse on international trade and economic development, offering a robust foundation for informed decision-making in the complex and dynamic realm of global economics.

1.2 Statement of Problem

In the continually shifting and dynamic global economic milieu, Nigeria, the most populous nation in Africa, finds itself at a pivotal juncture. In a context where trade barriers are progressively dismantled, and globalization gathers momentum, fundamental questions come to the fore: Can the embrace of trade openness inject fresh vitality into Nigeria's economic sectors, guiding them towards diversification and expansion? Or does it inadvertently tether the nation's economic future precariously to the vagaries of global oil prices, reinforcing an excessive reliance on petroleum resources?The discourse is ongoing, replete with contentions concerning the potential salutary effects of trade openness on Nigeria's sectoral composition.

The existing empirical research examining the influence of trade openness on the three pivotal sectors of Nigeria—namely, agriculture, manufacturing, and services—has primarily adopted a siloed approach, concentrating on each sector in isolation. Numerous studies, conducted by prominent authors such as Umoh and Effiong (2013), Adofu and Okwanya (2017), Ojeyinka and Adegboye (2017), Akpan and Atan (2015), Ajoje&Adegboyo (2022), Oji-Okoro et al. (2018), Effiom and Okon (2020), Asaleye et al. (2021), Aigheyisi (2021), and Abasikan et al. (2021), have contributed significantly to understanding the sector-specific impacts of trade openness in Nigeria. While these studies have made valuable contributions to the literature, a profound gap persists, which merits close examination.

The underlying issue lies in the limited scope of the existing literature, which primarily neglects the intricate interconnectedness and interdependencies of these sectors within the broader context of trade openness. The predominant focus on individual sectors has left a critical research gap concerning a comprehensive, tripartite model capable of concurrently evaluating the effects of trade openness on all three sectors. Consequently, the complex interrelationships, spillover effects, and feedback mechanisms between these sectors have been inadequately explored.

Recognizing the significance of addressing this gap, this study aims to offer a more accurate and comprehensive comprehension of the economic dynamics within Nigeria. By adopting a tripartite model, the research endeavors to illuminate the multifaceted relationships between trade openness and the pivotal sectors of agriculture, manufacturing, and services. This comprehensive approach will enable a thorough examination of the intricate interplay among these sectors, as well as the potential policy implications of trade openness for the entire Nigerian economy.

This research problem underscores the necessity to explore the combined consequences of trade openness on the three fundamental sectors, recognizing their interdependence, rather than treating them in isolation. By tackling this problem, the study aims to fill a vital void in the existing literature and to provide a more refined, nuanced, and comprehensive understanding of the economic implications of trade openness in the context of Nigeria.

1.3 Research Questions

What is the impact of trade openness on agricultural sector in Nigeria?
How does trade openness affect manufacturing sector in Nigeria?
What is the effect of trade openness on service sector in Nigeria?

1.4 Research Objectives

The broad objective of this study is evaluating the impact of trade openness on sectoral composition of growth in Nigeria. The specific objectives for this study are as follows:

To determine the influence of trade openness on agricultural sector in Nigeria.
To evaluate the effect of trade openness on manufacturing sector in Nigeria.
To examine the relationship between trade openness and service sector in Nigeria

1.5 Research Hypothesis

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