Impact of International Trade in Nigeria

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AN EMPIRICAL ANALYSIS OF THE IMPACT OF TRADE ON ECONOMIC GROWTH IN NIGERIA

AN EMPIRICAL ANALYSIS OF THE IMPACT OF TRADE ON ECONOMIC GROWTH IN NIGERIA MIKE I. OBADAN DEPARTMENT OF ECONOMICS AND STATISTICS UNIVERSITY OF BENIN BENIN CITY

AND OKOJIE, I. ELIZABETH
DEPARTMENT OF ECONOMICS AND STATISTICS UNIVERSITY OF BENIN BENIN CITY

ABSTRACT
Many economists generally agree that openness to international trade accelerates development. The relationship between trade and growth is envisaged through an export led growth strategy, following the theory that sustained trade is the main engine of economic growth. This paper examines the impact of trade on economic growth in Nigeria. Using time series data, a regression analysis was carried out using Microfit 4.1 econometric soft ware. Our results showed that trade openness positively impacted on Nigeria’s economic growth. Political instability had a strong negative impact on growth which reaffirms the very nature of our shaky nascent democracy. It is recommended that Nigeria should diversify her export base to include agricultural exports and solid minerals instead of depending solely on petroleum.

I.

INTRODUCTION Economists have long been interested in factors which cause different countries to grow at different rates and achieve different levels of wealth. One of such factors is trade. Nigeria is basically an open economy with international transactions constituting a significant proportion of her aggregate output. To a large extent, Nigeria’s economic development depends on the prospects of her export trade with other nations. Trade provides both foreign exchange earnings and market stimulus for accelerated economic growth.

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JOS JOURNAL OF ECONOMICS, VOL.4, NO.1

Several countries have achieved growth through an export–led strategy. Small economies in particular have very little opportunity to achieve productivity and efficiency gains to support growth. Without tapping into larger markets through external trade, Nigeria’s relatively large domestic market can support growth but alone, cannot deliver sustained growth at the rates needed to make a visible impact on poverty reduction. Hence Nigeria has continued to rely on foreign markets as well (World Bank, 2002). Many economists generally agree that openness to international trade accelerates development. The more rapid growth may be a transition effect rather than a shift to a different steady state growth rate. Clearly, the transition takes a couple of decades or more, so that it is reasonable to speak of trade openness accelerating growth rather than merely leading to a sudden one time adjustment in real income (Dollar and Kraay, 2001). Economic growth means an increase in the average rate of output produced per person usually measured on a per annum basis. The relationship between trade and growth is envisaged through an export – led growth strategy, following the theory that sustained trade is the main engine of economic growth. Many studies have sought to analyze export–growth relationships using ordinary least squares and cross section data to demonstrate the advantages of export promotion strategy in comparison with import substitution policy. While there have been numerous studies on cross section analysis, studies on country specific analyses appear scanty. Surprisingly, more than half of the empirical studies published in the 1990s found no long run relationship between exports and economic growth. Rather, these studies suggest that growth arises only from a positive short term relationship between export expansion and growth of gross

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AN EMPIRICAL ANALYSIS OF THE IMPACT OF TRADE ON ECONOMIC GROWTH IN NIGERIA

domestic product. Thus, the dismal performance in Africa’s trade is closely reflected in developments in the growth of GDP. Africa’s GDP growth averaged 0.8 percent over the period 1965–1990. Growth in the fastest growing developing countries outside Africa averaged 5.8 percent,...
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