IMPACT OF TRADE OPENNESS ON THE STANDARD OF LIVING IN NIGERIA

Abstract

The study empirically examined the impact of trade openness on economic growth in Nigeria. The study employed chi-square statistics to find out the relationship between trade openness and standard of living of Nigeria, trade openness underscore their increasing relationship with gross domestic product, increasing in their value link to increase in GDP all other things being equal. The negative sign of the exchange rate and balance of payment show that a depreciating exchange rate and unfavorable bank payment lead to a decline in gross domestic product.

TABLE OF CONTENT

Title page

Approval page

Dedication

Acknowledgment

Abstract

Table of content

CHAPTER ONE

1.0   INTRODUCTION

1.1        Background of the study

1.2        Statement of problem

1.3        Objective of the study

1.4        Research Hypotheses

1.5        Significance of the study

1.6        Scope and limitation of the study

1.7       Definition of terms

1.8       Organization of the study

CHAPETR TWO

2.0   LITERATURE REVIEW

CHAPETR THREE

3.0        Research methodology

3.1        sources of data collection

3.3        Population of the study

3.4        Sampling and sampling distribution

3.5        Validation of research instrument

3.6        Method of data analysis

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS AND INTERPRETATION

4.1    Introductions

4.2    Data analysis

CHAPTER FIVE

5.1    Introduction

5.2    Summary

5.3    Conclusion

5.4    Recommendation

Appendix

CHAPTER ONE

INTRODUCTION

• Background of the study

Nigeria is basically an open economy, which has never been in autarky (Okpokpo, 2005). Her involvement in the international transaction constitutes a significant proportion of her aggregate activity. Ever since the period of the Trans-Sahara trade Complex of the 16th century, the pre and post-independence she has been involved in trade. As at then, the states in the northern Nigeria were in touch with North Africa and Arabia to exchange their goods, which were made up of the metal wares of gold, silk, and wooden, beads and horses. The colonial period saw increased trade, which was the major pre-occupation of the imperialist leasing to even more openness to trade with discovery of crude oil deposit in commercial quantity. Interestingly, the new world economic order of Globalization has brought about an increased openness, trade and foreign capital inflow across borders. Globalization is a process of integrating economic decision making such as consumption, investment, and savings across the world. It is a process of creating a global market place in which, increasingly, all nations are required to participate (Todaro: 2006). Key elements in this process are interconnection of sovereign nations through trade and capital flows, harmonization of the economic rules that govern relationship among these sovereign nations, creation of structures to support and facilitate dependence and interconnection and the development of a global market. All economies are increasingly open in today’s economic environment of globalization. Trade plays a vital role in shaping economic and social performance and prospects of countries around the world, especially those of developing countries. No country has grown without trade. However, the contribution of trade to development depends a great deal on the context in which it works and the objectives it serves. In recent decades, a number of developing countries, most notably the East Asian newly industrializing countries, have been able to purposefully use the elemental force of trade to boost growth and development within a relatively short time span. At the same time many other developing countries, especially the least developed country (LDCs), have embarked on unilateral trade liberalization in recent years, with very limited results at best in terms of increase growth and development. These basic facts are symptomatic of something bigger and more profound in most developing economic especially the countries in sub-Sahara African of which Nigeria belongs. One of the hallmarks of policy reform in the 1980s and 1990s was the embrace of international economic integration (or globalization) by many poorer parts of the world. Having obtained independence in 1960, Nigeria being a young nation seems to be nursing a rising awareness and appreciation of globalization’s advantages, allowing national economies to allocate resources more efficiently through specialization and exchange in both static and dynamic terms to reap productivity gains and higher growth through widening the geographic range of markets and increasing exposure to world-class competition and technology transfer, among other things. Despite the huge campaign about the attraction of foreign direct Investment especially by the past Obasanjo’s administration, the real growth of FDI in Nigeria remains contentious. The non-implementations of effective policies and poor strategies of Nigerian government towards foreign direct investments are shaped by two principal objectives of self-desire for economic independence and the demand for economic development though which targets could hardly be attainable. However, many multinational corporations were expected to bring into Nigeria, foreign capital in the form of technical skills but which they were discourage due to the levels of insecurity for multinational companies, poor entrepreneurship, low levels of technology and infrastructures, and poor investment fund. The effects of foreign direct investments on the Nigerian economy as well as the nation’s ability to attract adequate amounts, sufficient enough to accelerate the pace of the economic growth and development were sabotage by the corrupt leaders. The current period in the world economy is regarded as period of globalization and trade liberalization. In this period, one the crucial issues in development and international economics is to know whether trade openness indeed promotes growth. With globalization, two major trends are noticeable: first is the emergence of multinational firms with strong presence in different, strategically located markets; and secondly, convergence of consumer tastes for the most competitive products, irrespective of where they are made. In this context of the world as a “global village”, regional integration constitutes an effective means of not only improving the level of participation of countries in the sub-region in world trade, but also their integration into the borderless and interlinked global economy. (NEEDS, 2005). Since 1950, the world economy has experienced a massive liberalization of world trade, initially under the auspices of the General Agreement on Tariffs and trade (GATT), established in 1947, and currently under the auspices of the World Trade Organization (WTO) which replaced the GATT in 1993. Tariff levels in both developed and developing countries have reduced drastically, averaging approximately 4% and 20% respectively, even though the latter is relatively high. Also, non-tariff barriers to trade, such as quotas, licences and technical specifications, are also being gradually dismantled, but at a slower rate when compared with tariffs. The liberalization of trade has led to a massive expansion in the growth of world trade relative to world output. While world output (or GDP) has expanded fivefold, the volume of world trade has grown 16 times at average compound rate of just over 7% per annum. In fact, it is difficult, if not impossible, to understand the growth and development process of countries without reference to their trading performance. (Thirlwall, 2000). Likewise, Fontagné and Mimouni (2000) noted that since the end of the European recovery after World War II, tariff rates have been divided by 10 at the world level, international trade has been multiplied by 17, world income has quadrupled, and income per capita has doubled. Incidentally, it is well known that periods of openness have generally been associated with prosperity, whereas protectionism has been the companion of recessions. In addition, the trade performance of individual countries tends to be good indicator of economic performance since well performing countries tend to record higher rates of GDP growth. In total, there is a common perception that even if imperfect competition and second best situations offer the possibility of welfare improving trade policies, on average free trade is better than no trade.

• STATEMENT OF THE PROBLEM

One important determinant of growth which has attracted much debate in recent growth studies is openness to trade. Developing nations like Nigeria, in the past had reasons to restrict trade as a policy towards protecting domestic industries, but in the wake of globalization, most of this countries have been forced to reconsider their economic policy stance in terms of trade openness. Nwafor Manson (unpublished) not that the Nigeria’s trade policy over the years has been determined by one/ more of the following.

Need to protect and stimulate domestic production (import capital goods at low prices etc), Need to ameliorate/prevent balance of payment problems, Need to boost the value of the naira, Need to be competitive and enjoy the benefits of openness, Need to increase revenue, standard of living and international agreement.

Today, as part of moving with the trend of globalization and trade liberalization in the global economic system, Nigeria is a member of and signatory to many international and regional trade agreements such as international monetary fund (IMF), world trade organization (WTO), economic community of West African States (ECOWAS), and so many others. The policy response of such economic partnership on trade has been to remove trade barriers, reduce tariffs, and embark on outward-oriented trade policies. Despite all her effort to meet up with the demands to these economic partnerships in terms of opening up her border, according to the 2007 assessment of the trade policy review, Nigeria’s trade freedom was rate 56% making her the world’s 131st freest economy while in 2009, it was ranked 117th freest economy, the country’s GDP was also ranked 161st in the world in February, 2009. It is in view of the above that the researcher intends to investigate the impact of trade openness on the standard of living in Nigeria.

• OBJECTIVE OF THE STUDY

The main objective of the study is to examine the impact of trade openness on the standard of living in Nigeria, but to aid the completion of the study, the researcher intend to achieve the following specific objectives;

1. To examine the impact of trade openness on output growth in Nigeria
2. To examine the internal and external macroeconomic shocks that determines output growth and standard of living in Nigeria

• To examine the international and external macro-economic shocks that determine the standard of living in Nigeria

1. To ascertain if there is any significant relationship between trade openness and standard of living in Nigeria.
   • RESEARCH HYPOTHESES

The following research hypotheses was formulated by the researcher;

H₀: there are no internal and external macroeconomic shocks that determines output growth and standard of living in Nigeria

H₁: there are internal and external macroeconomic shocks that determines output growth and standard of living in Nigeria

H₀: there is no significant relationship between trade openness and standard of living in Nigeria

H₂: there is a significant relationship between trade openness and standard of living in Nigeria

SIGNIFICANCE OF THE STUDY

The role of international trade in the developmental journey of an economy cannot be over emphasized, especially with the current trend of globalization. Nigeria. Being part of the global village, is not left out of this world development. This research work is carried out to study how trade openness has influenced the performance of the Nigeria economy through output growth in the presence of other internal and external shocks. The findings of this research work transcend beyond mere academic brainstorming, but will be of immense benefit to federal agencies, policy makers, intellectual researcher and international trade think tanks that occasionally prescribe and suggest policy options to the government on trade related issues. It will also help the government to see the effectiveness of trade liberalization policy on the economic growth of the nation over the years. This research work will further serve as a guide and provide insight for future research on this topic and related field for students who are willing to improve it. It will also educate the public on various government policies as related to trade issues.

SCOPE AND LIMITATION OF THE STUDY

The scope of the study covers the impact of trade openness on the standard of living in Nigeria but in the cause of the study, there are some factors that limited the scope of the study,

Time constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

Inadequate Materials: Scarcity of material is also another hindrance. The researcher finds it difficult to long hands in several required material which could contribute immensely to the success of this research work.

Financial constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

OPERATIONAL DEFINITION OF TERMS

Trade

Trade involves the transfer of goods or services from one person or entity to another, often in exchange for money.

Economic growth

Economic development is the process by which a nation improves the economic, political, and social well-being of its people.

Openness

Openness is an overarching concept or philosophy that is characterized by an emphasis on transparency and free, unrestricted access to knowledge and information, as well as collaborative or cooperative management and decision-making rather than a central authority

Standard of living

Standard of living refers to the level of wealth, comfort, material goods, and necessities available to a certain socioeconomic class in a certain geographic area, usually a country.

ORGANIZATION OF THE STUDY

This research work is presented in five (5) chapters in accordance with the standard presentation of research work.

Chapter one contains the introduction which include; background of the study, statement of the problem, aim and objectives of study, research questions, significance of study, scope of study and overview of the study. Chapter two deals with review of related literature. Chapter three dwelt on research methodology which include; brief description of the study area, research design, sources of data, population of the study, sample size and sampling technique, instrument of data collection, validity of instrument, reliability of instrument and method of data presentation and analysis. Chapter four consists of data presentation and analysis while chapter five is the summary of findings, recommendations and conclusion.

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