IMPACT OF INTERNATIONAL TRADE ON THE ECONOMY GROWTH OF NIGERIA

CHAPTER ONE

INTRODUCTION

1.                 Background of the Study

International trade can be seen as trade/ exchange of goods and services that exists between two or more countries of the world. (Mannur 1995) defines international trade as an exchange of goods and services between the residents of a given country and of the rest of the world. It is therefore, a process which links the countries of the world through commodity trade, service flows and factor movement/factors of production which are labour, capital etc. According to (Adedeji, 2006) it is shown that countries engage in international activities with the aim of making profit.

International trade occurs due to differences in natural resources endowments, technology, demand, existence of economics of scale in production, financial capital and existence of government policies etc. In all these, there are people that are more endowed but are unable to manage and direct them to their useful state, thereby lowering the growth and development of the economy, which reduce the standard of living of its citizens.

International trade arises due to the need for exchange which involved from the barter system to the money system. International trade became popular in Nigeria due to colonial rule that brought their wares and made Nigerians their middle men (Nick 2008). The classical and neo-classical economists have attached so much importance to international trade in an economy’s growth that they even regard it as engine of economic growth (Jhingan, 2006). So, growth of any country’s output and per capita income does not base only on domestic production and consumption activities but also on international transaction of goods and services. Foreign trade plays a vital role in reforming economic and social attributes of countries (improving standard of living and preferences) around     the world, particularly the less developed countries. One of the major important of international trade is that it enables other country to obtain the goods and services which they cannot produce in the home country or commodities which is too costly if produced at home.

Upon Nigeria endowments with about 37 solid minerals type and population estimates of over 170 million people, Nigeria has failed in relation to her peer like emerging Asia countries- Thailand, Malaysia, China, India, and Indonesia. Before the discovery of oil in 1960s, the Nigeria government was able to carry out investment project through domestic savings, earning from agricultural produce exports and foreign aids, but the discovery of oil has brought general stagnation in agriculture exports and oil now become the major source of foreign exchange earning in Nigeria. For instance in 1970s petroleum constituted of about 78% of federal government revenue and more than 95% of export earnings and about 15% of the GDP. (World Bank, 2002). The arrival of oil leads to the loss of Nigeria’s position as an important producer and exporter of palm oil produce, groundnut, cocoa, and rubber (CBN annual report 2006). Between the year 1960 and 1980, agriculture and agro-allied exports constituted an average of 60% of total export in Nigeria, which is now accounted for, by petroleum oil export, (CBN annual report and account, 2004).furthermore, by 1997, export stood at N7881.7 million. Between 1960 and 1977, value of export grew by 19%. It should be noted that before 1972, most of the export were agricultural commodities like cocoa, palm produces, cotton and groundnut.

Thereafter, minerals, especially crude, petroleum, became significant export commodities. Imports also increased in values during the period. By 1960, imports were valued at N 432 million. They increased to N758.99million and N813.2 million in 1970 and 1978 respectively, rising to N124,162.7 million in 1992 and N681,728.3 million in 1997. Non-oil GDP recorded a growth rate of 8.9% compared with 8.5% in 2010. The improved performance in the sector was driven largely by the agricultural sector which grew by 5.7% underpinned by robust growth in all its components. However, from 1974, food import became obvious in Nigeria’s international trade. The country had unfavourable trade balance from 1960 to 1965, partly because of the aggressive drive to import all kinds of machinery to stimulate the industrialization strategy pursued immediately after independence. Therefore, export of crude, petroleum guaranteed a favourable trade balance. The oil sector dominates export while the non-oil sector dominates import. Between 1960-1970, oil export grew by 31.6% and 44.6% respectively. Also, from this period, non-oil export showed marginal growth of 1.2% and 6.6%. This made Nigeria to be 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. 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 abundance of natural resources like minerals and fuels tends to have less economic growth and worse development outcomes than countries with fewer natural resource.

2.                 Statement of the Problem

From the background of the study, it could be seen that growth performance of the Nigeria economy has been less satisfactory during the past three decades and there had never been a steady growth in the nation’s economy, inspite of all her endowments. Apart from oil, Nigeria exports are mainly primary products and depends more on a limited number of commodities (such exports are characterized by lower prices than manufactured goods with highly volatile markets). Thus, Nigeria is often on the wrong end of unbalanced trade environment that favours developed countries. Nigeria with the abundant human and natural resources is paradoxically being regarded as one of the poorest and indebted countries in the world. Hence, the need to answer some important questions in this research studies.

3.                 Research Questions

The following are questions that this study seeks to answer and these questions will guide us through the course of this study.

1.                 What is the impact of export trade on economic growth in Nigeria?

2.     To what extent does exchange rate impact on the economic growth process in Nigeria?

3.     What is the impact of import trade on economic growth in Nigeria?

4.     What is the impact of balance of payment on Nigeria’s economic growth?

1.                 Objectives of the Study

The general objective of this study is to examine the impact of international trade on Nigeria’s economic growth. The specific objectives of the study however are as follows:

1.        To examine the impact of export trade on Nigeria’s economic growth.

2.        To examine the impact of exchange rate on Nigeria’s economic growth.

3.        To examine the impact of import on Nigeria’s economic growth.

4.        To examine the impact of balance of payment on economic growth in Nigeria.

1.                  Statement of Hypothesis

HO:  Export trade has no significant impact on economic growth of Nigeria.

H1: Export trade has significant impact on economic growth of Nigeria.

H0: Exchange rate does not have any significant impact on economic growth in Nigeria.

H1: Exchange rate has significant impact on economic growth in Nigeria.

H0: Import trade has no significant impact on economic growth in Nigeria.

H1: Import trade has significant impact on economic growth in Nigeria.

H0: Balance of payment does not have any significant impact on economic growth in Nigeria.

H1: Balance of payment has significant impact on economic growth in Nigeria.

1.        Significance of the Study

1.                 This study is significant because international trade is important in any economy as it is seen as one of the engines of economic growth. It is therefore important to examine the ways to maximize benefits and minimize losses from international trade.

2.                 This study will be useful to policy makers, to make positive policies.

3.                 This study will also be useful 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.

4.                 This study is important to foreign partners as this provides information on Nigeria’s resources.

5.                 It is also useful to researchers as it provides an econometric evidence of the impact of international trade on the growth of the Nigeria economy.

6.                 This study will add to the existing body of knowledge in the area of international trade and its contributions to the economic growth of Nigeria.

1.           Scope and Limitation of the Study

In this study, the researcher will be using economic data of Nigeria ranging from 1981-2016. This study will be as broad as possible to examine exchange rate, total export, total import, balance of payment and gross domestic product.