INTERNATIONAL TRADE FLOWS AND EMPLOYMENT IN NIGERIA: A TREND ANALYSIS FROM 1981-2006

ABSTRACT

 This study investigates the relationship between international trade flows and employment in Nigeria for the period 1981 to 2006. Using time series estimation technique, we found no significant link between trade flows and employment in Nigeria both in the short-run and long-run. However, external factors such as FDI, real effective exchange rate, SAP and internal factors such as political stability, labour regulation and real wage are more important factors in explaining employment rate in Nigeria. Like explanations of these outcomes are probably due to the country trading
majorly in primary products which are largely uncompetitive and the non-diversification of the productive base of the economy such as the overdependence on oil exports. An effective and result-oriented employment effect from trade is likely to be aided by fortifying appropriate and enabling environment institutional regulatory measures to enhance the diversification and competitiveness of Nigeria’s trade, the removal of impediments to labour market participations and labour market interventions such as putting effective social commitments to principles of competition and diversification

CHAPTER ONE: INTRODUCTION

1.1.   Background to the Study

Nigeria is characterized with a ‘dualistic’ (dual) labour market in
which the minority of workers has regular formal sector jobs, while majority
works in informal sector, with a large pool of surplus labour. This is seen
from its rapidly increasing labour force. For instance, the labour force
increased from 25.7 million persons in 1980 to 33.9 million persons in 1990 and
further increased to 45 million and 52.7 million persons in 2000 and 2006
respectively(CBN,1993). In addition to this, statistical evidences from the
government show that the absolute number of total employment in the country has
been steadily increasing since 1980. For instance, total employment increased
steadily from 18.6 million in 1980 to 22.1 million in 1990, which further rose
to 27.5 million in 2000 and later to 34.4 million in 2006.

However, in spite of the country’s large pool of surplus labour, rapidly
growing labour force and increasing employment, the share of employed workers
in total labour force has been declining since 1980, coupled with this, in the
last two decade, the trend has been below 70%, which is an indication of high
unemployment as more than 30% of its active population are unemployed. For instance, in 1980, the participation rate was 69%, however, the share of employed in total labour force is given as 72.4% which is indicative that about 27.6% of the labour force are unemployed in this period. However, in 1990, while the participation rate increased to 71%, share of employment in total
labour force declined to 65.2% (CBN, 1993). In 2000, both the share of employment in total labour force and participation rate further declined to 61.1% and 70% respectively. However, in 2006, share of employment in total labour force marginally rose to 61.5% while the participation rate marginally fell 69%. In the same vein, 27.6% of the labour force was unemployed in 1980
and this rose to 34.8% in 1990 and further rose to 38.9% and 38.5% in 2000 and 2006, respectively. These trends are indicative of a huge employment problem as the economy’s capacity to absorb its rising labour force is low as more than 30% of its active population is unemployed.

In addition, imports value increased from U$1058.9 million in 1970 to
US$16646.4 million in 1980 but fell to US$5687.9 million in 1990. However, it
rose again in 2000 to US$9647 million and rose further to US$33398.1 million in
2006(CBN, 2007). This trend is not surprising as Nigeria is highly dependant on
imports for most of its raw materials inputs (Oyejide, 1986) and the employment
effect of these imports might be positive if a significant portion of imports
serves as inputs for labour intensive industries. However, this trend has given
rise to debates in developing countries where concerns have been expressed over
the loss of jobs due to import competition (Ghose, 2003) and deindustrialization
(Pierper, 1998) as result of increased imports. It is on this basis that the
study seeks to determine the specific effect of imports on employment in
Nigeria.

In terms of Nigeria’s exports, prior to 1970, Nigeria export was largely
dominated by non-oil products (Osuntogun et al. 1997, Oyejide 1986). However,
since the oil boom of 1973/74, the bulk of Nigerian exports have been mainly
oil export, while the share of non-oil exports in total exports has continued
to remain under 5.5% for about the last 2 decades and these non-oil exports
have been growing very slowly over time (CBN, 1993). In 1970, non-oil exports
accounted for as high as 42.4% of total exports but gradually started fading
out and by 1980; it has declined to 3.9%. This further declined to 3.0% in 1990
and by 2000; it was as low as 1.3% before slightly increasing 2.3% in 2006(NBS,
2006). This occurrence has transformed the country from a net exporter of
agricultural produce in the 1960s and early 1970s to a large scale importer of
the same commodity (Oyejide, 1986) and the consequent decline in agriculture
shows that Nigeria is not fully engaging its surplus labour in food production
and other agricultural production. In addition, the oil export which dominates
the exports basket of the country typically generates little employment, most
especially since a large quantity of the crude oil is exported in unprocessed
form. 

However, government has tried to reverse this trend through the
implementation of policies to diversify the country’s export base away from oil
so as to promote stronger export performance. Such export policy includes export
promotion strategies in which incentives were given for the promotion of
non-oil exports particularly agriculture and labour intensive manufactures
(Kareem O.I. 2007). As noted by Carneiro and Arbache (2003) and Rama (2003),
export promotion improves employment level in countries embracing the
strategies. Therefore, there had been an ongoing argument between government
and public, while the former opined that her export promotion policies have
increased the level of employment, majority of the people believe that
unemployment is on the rise; it is against this backdrop that we consider it
interesting to determine whether the flow of exports have brought any
significant effect on employment in Nigeria.

1.2. Statement of the Problem

The problem of unemployment is a serious deficiency to any economy; this
is why one of the main macroeconomic objectives of any country is to attain
full employment. The issue of employment is paramount to Africa and Nigeria in
particular, where high-level poverty is obvious with rising unemployment rates.

However, in order to combat the problem of poverty, Oni (2006) argued
that reducing the level of unemployment will increase the income level in the
economy and thereby reduce the level of poverty. To increase the level of employment,
some scholars have argued that the flows of goods and services (trade flows) could propel
employment generation, especially in developing countries.

Based on the above problems this research intends to answer the following question:

1.To what extent can International Trade flows generate employment in Nigeria?

2. How would Nigeria’s Trade help in enhancing job creation to its people?

1.3. Objectives of the Study

The broad objective of this study is to evaluate the effects of trade flows on employment
generation in Nigeria. Specifically, to examine;

i.       The impact of both export and import growth rates on employment generation,

ii.    Whether the relationship between trade flows and employment is a long run or short run or both, and

iii.  Then recommend appropriate policies.

1.4. Significance of the Study

The research intends to examine primarily how trade flows affect employment in Nigeria. Thus the study will be of paramount significance and will contribute to the literature on international trade flows and employment in many folds. Firstly, the study will provide empirical evidence which will serve as research ingredient in this particular area. Secondly, it will assist government in
policy formulation on the area of international trade and employment.

Thirdly, the research will serve as a catalyst for managing and improving employment issues by the labour union in the country. Fourthly, Nigeria’s historical, trade and economic linkages serve as justification to evaluate her trade patterns and labour market impacts.

In sum, this study will contribute to a better understanding of the
employment effects of trade flows in Nigeria. It will also contribute to
existing knowledge in terms of the scope of the study, inclusion of relevant variables,
and a rigorous and encompassing methodology that will bridge the gaps in the
literature. Therefore, it is very important to examine how trade flows affect
employment in Nigeria.

1.5. Research Questions of the Study

This study intends to provide answers to these questions:

1.  To what extent is the growth rate of aggregate employment attributable to export growth rate?

 1. To what extent is the growth rate of aggregate employment attributable to imports
growth rate?

2.    Does a long or short run relationship or both exist between trade flows and employment?

3.    To what extent is Nigeria’s total employment growth rate attributed to domestic factors and external factors?

1.6. Research Hypotheses of the Study

The study’s working null hypotheses are:

Ho1: There is no significance relationship between exports growth rate and
aggregate employment rate.

Ho2: There is no significance relationship between imports growth rate and
aggregate employment rate.

1.7. Scope of the Study

This study will establish the link between trade flow and employment in
Nigeria for the period 1981 to 2006 for which data is available.

1.8. Limitations of the study

The study would have been more accurately analyzed, but a research work
of this nature cannot be exhaustive and complete. This short fall is attributed
to time and material constraint involved in making the research. Inadequacy of
literature about employment also limits the research project.

In addition, other limitation exist as there is massive informal trans-border
trade by Nigerian Shippers(Importers/Exporters) which are not formally
recorded, thereby making it difficult to measure the exact cargo volume that
suppose to come into the country, which the study should capture. But the
researcher was able to searched relevant literature and gather relevant
information for this study.

1.9. Scheme of Chapters

This research work is divided into five (5) chapters, chapter one deals
with general introduction. Chapter two reviews both the theoretical and the
empirical literature.

Chapter
three contains the methodology of the study. In chapter four a detailed
background of the study covering the trends in trade and employment in Nigeria
is critically analyzed, also data will be presented, and given economic
interpretations. Chapter five summarizes the study’s findings, provides
appropriate recommendations and concludes the study