ABSTRACT
This research study examined the impact of
international trade on the economic growth of Nigeria from 1981-2016. Annual
figures of RGDP, export, import, exchange rate and balance of payment were used
and ordinary least square (OLS) technique were employed for its estimation. The
work is divided into five chapters: chapter one gives a general introduction to
the subject matter, chapter two gives the general review of literature in the
subject matter, chapter three states the methodology and specifies the model
used for testing. Chapter four runs the required tests and provides the result
as well as the interpretation and chapter five concludes the findings in the
test. The evidence from the findings was that within the period studied, import
has a positive and significant impact on economic growth, exchange rate has
positive but did not significantly contribute to economic growth and export and
balance of payment are both negative and insignificant contributors to economic
growth in Nigeria. The study recommended that Nigeria government should promote
importation of raw materials and exportation of finished goods so as to promote
favourable balance of payment hence economic growth.
CHAPTER
ONE
INTRODUCTION
1.1
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.
1.2.
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.
1.3.
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?
1.4.
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.
1.5
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.
1.6
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.
1.7
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.
1.8.
Definition
of Terms
Exchange rate is
the rate at which one currency is exchanged in terms of another currency or can
also be defined as the price of one unit of foreign currency in terms of
foreign currency.
Balance of payment is
the systematic record that shows a country’s transaction (payment and receipt)
with other countries, it is usually one year or quarterly or it can be defined
as a systematic record of all its economic transactions with the outside world
in a given year.
GDP is
the total market value of all goods and services produced in a country in a
given year.
Export is
the total goods and services that a country is ready to sell to other
country/ies.
Import is
the total goods and services that a country purchases from another country.
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