ABSTRACT

This study investigated the effects of trade liberalization policy on Nigerian economy, from 1970 to 2020. The specific objectives were to determine the trend of GDP growth in agricultural and manufacturing sectors between 1970 and 2020, examine the effect of trade liberalization policy on the output of agricultural and manufacturing sectors of Nigeria, determine the overall effect of the trade liberalization policy on Nigeria aggregate output, examine the effect of the trade liberalization policy on import and export in Nigeria and ascertain the effect of trade liberalization on the economic development of Nigeria at the micro level. Data were collected from Central Bank of Nigeria (CBN) statistical report bulletins, CBN online data base, National Bureau of Statistics, International Financial Statistics as well as World Development Indicators of World Bank for the period 1970-2020. Data were analyzed using Ordinary Least square, demand functions and the 2SLS regression technique with the help of Eview9 software. Unit root test was carried out using ADF to ensure the stationarity of data, Error Correction Model was used to stationalize the nonstationary data and finally co-integration test was carried out and a long-term relationship was ascertained to exist among the variables. The trend analysis showed a steady increase in GDP growth in agricultural sector and an increase at a decreasing rate in manufacturing sector in the period under study. The minimum GDP for agricultural sector is 1690000 million naira and the maximum is 18124411.58 million naira while that of manufacturing is 2303505.42 million naira and 15952220.14 million naira for minimum and maximum respectively. On the effect of trade liberalization policy on the output of both sectors, the study found that the degree of openness in trade has a positive and significant effect on agricultural GDP at 1% level, and the absence of a significant relationship with manufacturing GDP. Trade openness has a negative but insignificant relationship with overall aggregate output at the long-run and a positive insignificant value at the short-run. On the effect of trade liberalization policy on import and export, it has a negative and significant effect on Nigeria growth rate of real exports during the period in which liberalization took place and a positive and significant effect for import in the same period, implying that the period in which liberalization took place favoured imports. The effect of trade liberalization on the economic development of Nigeria was determined by its effects on poverty, inequality of income distribution, per capita gross domestic product and employment. The study found that degree of openness has a negative and insignificant effect on poverty, a positive and significant effect on income inequality, negative and significant effect on per capita GDP and a positive and significant effect on employment. The study recommends amongst others that the government puts in place policies to encourage export diversification rather than import, policies that will encourage small-scale and large-scale manufacturers alike and also engage in wealth generation programmes at the rural areas, so also the private sector, to help close the income inequality gap.

TABLE OF CONTENTS

Cover page

Title page i

Declaration ii

Certification iii

Dedication iv

Acknowledgement v

Table of contents vi

List of Tables ix

List of figures x

Abstract xi

CHAPTER 1: INTRODUCTION

1.1 Background Information 1

1.2 Problem Statement 9

1.3 Objectives of the Study 14

1.4 Hypotheses 15

1.5 Justification for the Study 15

Chapter 2: LITERATURE REVIEW

2.1 Conceptual Review 17

2.2. Theoretical Review 21

2.2.1 Neo liberalism and the impact on trade 21

2.2.2 Traditional theory of trade liberalization 22

2.2.3 David Ricardo theory of comparative advantage (1886). 24

2.2.4 Adam Smith theory of absolute advantage (1776). 24

2.2.5 Factor endowments theory 25

2.2.6 Innovation theory 26

2.2.7 The Vent–for surplus theory of international trade 27

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2.2.8 Effect of free trade on growth 30

2.2.9 Multilateral and bilateral agents behind trade liberalization 33

2.2.10 Economic conditions prior to liberalization in Nigeria economy 34

2.2.11 Rationale for trade liberalization in Nigeria. 35

2.2.12 Overview of Nigeria’s major trade polices 35

2.2.13 Trade policy instruments under import substitution strategy

(ISS) tariff policy 38

2.2.14 ECOWAS and trade liberalization 39

2.2.15 Nature and importance of agriculture 41

2.2.16 Nature of manufacturing sector in Nigeria 42

2.3 Empirical Review 43

2.3.1 Trade liberalization and industrial growth 43

2.3.2 Trade liberalization and agricultural productivity growth 45

2.3.3 Trade liberalization and economic growth 46

2.3.4 Divergent views on trade liberalization and economic growth 55

2.3.5 Agricultural sector and economic development 57

2.4 Analytical Review 58

2.4.1 Unit root test 58

2.4.2 Co-integration test 59

2.4.3 Error correction model 60

2.4.4 Ordinary least square (OLS) 62

2.4.5 Simultaneous equations models and 2-stage least squares 64

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CHAPTER 3: METHODOLOGY

3.1 Study Area 67

3.2 Data Collection 69

3.3 Method of Data Analysis 70

3.3.1 Estimation Procedure 70

3.4 MODEL SPECIFICATION 71

CHAPTER 4: RESULTS AND DISCUSSION

4.1 Diagnostic/Pre- Estimation Tests 79

4.1.1 Tests for stationarity: 79

4.1.2 Tests for cointegration: (the Engle-Granger test) and specification

of the error correction model (ECM) 80

4.2 Trends in Agricultural and Manufacturing

Sectors GDPs from 1970 -2020 82

4.2.1 Summary statistics of the trends in agricultural and manufacturing

sectors GDPs 82

4.2.2 Graphical presentation of trends of agricultural sector GDP in

Nigeria from 1970-2020. 83

4.2.3 Graphical presentation of trends of Manufacturing sector GDP in

Nigeria from 1970-2020 84

4.2.4 Exponential trend equations for agricultural and manufacturing

sectors GDP in Nigeria (1970 – 2020) 86

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4.2.5 Acceleration, deceleration or stagnation in the GDP of agricultural

and manufacturing sectors 88

4.3. Effect of Trade Liberalization Policy on the

Output of Agricultural and Manufacturing

Sectors of Nigeria 89

4.3.1 Long–run response of agricultural sector to trade liberalization in

Nigeria (1970- 2020) 89

4.3.2 Short-run response of agricultural sector to trade liberalization

variables in Nigeria (1970- 2020) 92

4.3.3 Long–run response of manufacturing sector to trade liberalization

variables in Nigeria (1970-2020) 95

4.4. Overall Effect of the Trade Liberalization

Policy on Nigeria Aggregate Output 101

4.5 Effect of Trade Liberalization Policy on Import

And Export in Nigeria 106

4.6 Effect of Trade Liberalization on the Economic

Development of Nigeria at the Micro Level 110

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CHAPTER 5: SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary 114

5.2 Conclusion 116

5.3 Recommendations 117

 References

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LIST OF FIGURES

2.1 Transmission mechanism of general innovation theory 27

2.2 Diagram of vent for surplus argument 28

2.3 Transmission channel for trade expansion 29

2.4 Losers and gainers of free trade curve 31

3.1 The map of Nigeria 69

4.1 Trend of agricultural sector GDP in Nigeria (1970 – 2020) 83

4.2 Trend of manufacturing sector GDP in Nigeria (1970 – 2020) 85

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LIST OF TABLES

4.1 Result of unit root test for variables used in regression analysis 80

4.2 Residual-based co-integration test (the Engle-Granger test) for the

impact of trade liberalization policy on Nigerian economy

from 1970-2020 81

4.3 Summary statistics of agricultural and manufacturing sectors GDPs 83

4.4 Estimated exponential trend equations for agricultural and

manufacturing sectors GDPs (1970-2020) 86

4.5 Estimates of quadratic equation in time trend variable for the

agricultural and manufacturing sectors GDP 88

4.6 Long-run effect of trade liberalization policy on the GDP of

agricultural sector of Nigeria; 90

4.7 Regression result of the short-run effect of trade liberalization policy

on agricultural GDP in Nigeria (1970 – 2020) 93

4.8 Long-run effect of trade liberalization policy on the GDP of

manufacturing sector of Nigeria 96

4.9 Regression result of the short-run effect of trade liberalization policy

on manufacturing sector GDP in Nigeria (1970 – 2020) 98

4.10 Regression result of the response of aggregate GDP to changes in

trade liberalization in a long-run (1970 – 2020) 101

4.11 Regression Result of the response of Aggregate GDP to changes in

trade liberalization in a short-run (1970 – 2020) 104

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4.12 Long run relationship between trade liberalization policy variable and

export in Nigeria (1970 -2020) 107

4.13 Long run relationship between trade liberalization policy variable and

import in Nigeria (1970 -2020) 108

4.14 Identification results for order conditions and rank conditions 110

4.15 Two-stage least squares estimation results of the effect of trade

liberalization on the economic development of Nigeria at the

micro level 111