IMPACT OF EXPORT EARNINGS ON THE ECONOMIC GROWTH OF NIGERIA (1981-2013)

CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND TO THE STUDY

The study of economic growth cannot be properly Discussed without mentioning trade as an engine of economic growth be it domestic trade or trade with other  countries. The new classical economists, for example, drawing from historical evidence from the nineteenth Century, likened trade to an “engine of growth” (Nurske, 1961). Also, Kravis (1970) dubbed trade to be the “handmaiden of growth”. It has, therefore, become imperative for every Government to pay keen attention to matters relating to trade especially how to attain a higher real productivity in the export sector. Exports are goods and services produced domestically and purchased by foreigners. Net  exports are the difference between total exports and total imports. According to Afolabi (2011) Export can be defined as surplus goods and services of a country that are sent to other countries in the world for sale.

Samuelson and Nordhaus (2010) see exports as the mirror image of imports. That one countries export is another’s imports. However, export is any goods or commodity transported from one country to another country in a legitimate fashion typically for use in trade (Oluchi, 2007). Just as there have been a continue increase in the importance of foreign trade so, also have the study of the concept by researchers been on an increase. This however, has led to the evolvement of several theories to analyze the impact of export on economic growth. According to Bbaale and Mutenyo (2011) as cited in Ugwuegbe and Uruakpa 2013) the present literature presents several plausible theoretical arguments supporting the view that exporting activities and overall economic growth are positively associated. On the one hand, exporting implies that a country gains access to the wider external demand, which acts as a stimulus to domestic output and hence economic growth. Second, it is frequently argued that small domestic markets may not grow continuously and that any positive economic shock leading to the expansion of the domestic markets is more likely to decay quickly. On the other hand, large external markets do not always encompass growth restrictions of economies of scale.

However, the relationship between exporting and economic growth remains controversial as some authors have argued that export growth precedes economic growth hence giving a stance to the export-led growth (ELG) hypothesis (Arnade et al, 1995; Fosuthornton, 1996).on the other hand, others have provided evidence in support of the growth-led export hypothesis (GLE) by arguing that economic growth comes before export growth (Krugman,1984,Lancester,1980;Henriques and Sadorsky, 1996; Al-Yousif, 1999;Kernel et al, 2002). Nigeria, like many other developing countries in Africa, started as a purely Agrarian economy. Nigeria major agricultural produce include beans, cassava, cocoa beans, groundnuts, palm oil, rice, rubber, timber, yams, amongst others. These products accounted for over 50 percent of Gross domestic product (GDP) and were the main source of export earning and public revenue. With cocoa being the leading export earner and seconded by rubber. Agricultural exports (including manufactured food and agricultural products) decreased quantitatively after 1970 this can be attributed to low world price of primary products.

The Government of Nigeria, in 1979, banned the importation and exportation of many foods (Encyclopedia of the Nation 2007). Again, following the discovery of oil and the buoyant oil revenue in the 1970’s relegated agriculture to the background; this is a result of crude oil constituting about 90 percent of total export. However, in the 1980 the world oil market collapsed. The collapse resulted in drought in oil earning and budgetary receipts without a proportionate slow down in fiscal and external deficits. In a bid to finance the domestic and external deficits, government resorted to heavy borrowing from the banking system, international financial institutions and depleting of external reserves. The subsequent decline in foreign exchange earnings also triggered an unperfected economic crisis (Omotor and jike, 2006).it is in response to these immense problems that the structural Adjustment program (SAP) was introduced in the late 1980s. This was aimed at liberalizing and diversifying the economy.  SAP was designed to pay more attention to export, especially in the Agricultural sector, which witnessed the worst neglect. The adoption of SAP was followed by formulation of several export promotion strategies and policies especially on manufacturing export. Which include various incentives on export, Researched and Development (R&G), privatization of state owned enterprises and host of others. In the light of the above, this research work aims at analyzing the effect of export earning fluctuations on Nigeria’s economic growth.

1.2  STATEMENT OF THE PROBLEM

Nigeria is generously endowed with abundant natural resources such as crude oil, columbite, limestone, Cole, lead, iron-ore, tin, with a whole lot of Agriculture produce amongst which are cocoa, rubber and timber. All these resources if carefully and properly harnessed would foster the economic growth and development of Nigeria. Yet the Nigeria economy has from time to time been crippled by issues like corruption, balance of payment problem, High Debt, Inflation, and Unemployment. Despite all the numerous blessings Nigeria still remain underdeveloped whereas she stands a better chance, as the giant of Africa, to become one of the world leading economies.

In the decades of the 1960’s and 1970’s  the Nigeria  economy was dominated by Agricultural commodity export such as cocoa, groundnut, cotton, rubber, coffee, beniseed and palm produce which are basic raw materials for a wide range of manufactured goods. By 1950’s and 1960’s, 3%-4% annual output growth rates for agricultural food crops were achieved. Government earning also depended heavily on taxes on export. Thus, during the period, the current account and fiscal balances depended on the agricultural sector. Until the early 1970’s where reliance was shifted to crude oil (Osuntogun et al, 1997). Gani (2011) noted that with the oil boom in mid 1970’s was an immense rise in the country’s foreign exchange earning which in turn resulted in a higher economic growth. The period is also characterized by high level of expenditure in the part of Government on capital intensive project and administration cost. In the late 1970’s and early 1980’s, there was a fall in world oil price and this resulted to series of macroeconomic problems as a result of the over dependency on oil sector. Amongst the macroeconomic problems that emerged are high rate of unemployment, price instability, balance of payment deficit, budget deficits which led to Government borrowing from external bodies so as to meet up with capital intensive projects.

However, in response to these enormous problems the government has embarked on several policy reforms as a way of liberalizing and diversifying the economy. Prominent among the policies is the Structural Adjustment Programme (SAP). Some previous studies show the relationship between exports and Nigeria economic growth while other showed the extent at which oil export and non-oil export individually affect the economic growth of Nigeria. This study, however, failed to analyze clearly the effect of Bank credit on export earning cum economic growth of Nigeria. This research work will attempt at verifying the effect of this variable and hence closed the gap in knowledge inherent in other studies.

1.3  RESEARCH QUESTIONS

1. To what extent do export earnings impact on the economic growth of Nigeria?

2. What is the long-run relationship between export earning and economic growth of Nigeria?

3. What is the direction of relationship between export earning and economic growth of Nigeria?

1.4   OBJECTIVES OF THE STUDY

The objectives of this study are to:

1. Examine the impact of export earning on the economic growth of Nigeria.

2. Investigate the relationship between export earning and economic growth in Nigeria.

3. Investigate the long run relationship between export earning and economic growth of Nigeria.

1.5  STATEMENT OF THE HYPOTHESIS

Ho: Export earning has no significant impact on the economic growth of Nigeria.

Ho: Export earning has no significant relationship with economic growth in Nigeria.

Ho:  Export earning has no long run relationship with economic growth in Nigeria.

1.6    SIGNIFICANCE OF THE STUDY

The impact of export earning fluctuations on the sustainable growth of any nation cannot be over-emphasized; since increase in export earnings (over its counterpart, import) would make any Nation better-off in trade with other countries. Therefore, this work will be of immense importance to government and its agencies, and the general public. Also, it will be of great importance to ministry of trade and industry, investors as well as financial intermediaries or institutions. Above all, it will be a stream of knowledge for economist, students and researchers who have interest on issues relating to export.

1.7     SCOPE AND LIMITATION OF THE STUDY

This research will analyze the effect of export earning fluctuations in Nigeria economy, taking proper analysis on various ways and means put by the government of Nigeria to improve export earning since 1981-2012. The research work, however, is not void of constraints as the researcher encountered a number of constraints in the cause of this work. The constraints include data sourcing as well as data inconsistency due to poor nature of information management in Nigeria. However, host of other constraints that prevent the researcher to present a better work than this abound. Prominent among them are time factor, financial constraints and lack of electricity.

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