THE IMPACT OF INTERNATIONAL TRADE ON ECONOMIC GROWTH OF NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

International trade deals with the economic and financial interdependence among nations, international trade is a part of our daily life, international 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 international trade to economic growth depends a great deal on the context in which it works and the objectives it serves.

International trade is the exchange of capital goods and services across borders or territories. Through international trade countries supply the world economy with the commodities that they produce relatively cheaply and demand from the world economy the goods that are made relatively cheaper elsewhere. The positive effects of international trade on economic growth were first pointed out by Smith (1776). This idea prevailed until World War II, although with relative hibernation during the “Marginalist Revolution”. Economic theories have argued that countries engage in international trade to reap the gains that arise from specialized production with each country concentrating on producing those goods and services that involve the least opportunity cost.

Economic growth is the increase in the amount of the goods and services produced by economy overtime, it can also be said to refer to growth of potential output, that is, production. It is measured as the percent rate of increase in real GDP. Various literatures on international trade recognize trade as a catalyst for economic growth. To act as an engine of economic growth, trade must lead to steady improvements in human conditions by expanding the range of people’s choice, a notion that the concept of human development tries to capture. For developing countries, contribution of trade to economic growth is immense owing largely to the obvious fact that most of the essential element for growth of such as capital goods, raw materials and technical know-how, are almost actively imported because of inadequate domestic supply. Foreign exchange has to be earned through exports to be able to pay for imports. To enhance exports, improved technology must be acquired, and this in turn further pushes up demand for imports.

Prolonged pressures on the balance of payments constitute constraints to economic growth and thus, appropriate economic policy measures have to be put in place to streamline international trade to conform to desired goal of economic growth.

1.2 STATEMENT OF PROBLEM

The importance of international trade in the development process has been of interest to development economists and policy makers alike. Imports and exports are a key part of international trade and the import of capital goods in particular is vital to economic growth. This is so because imported capital goods directly affect investment, which in turn constitutes the motor of economic expansion. Economic reform is expected to affect imports as part of the strategy to restore balance.

In Nigeria, some people are in favour of protectionist and highly regulated economy and have even criticized the previous Nigeria government for signing the treaty of World Trade Organization, claiming that, Nigeria was not adequately represented in the negotiations and that we should push for a fairer deal. 

The research questions which will guide this work are as follows. Does international trade lead to economic growth? What are the factors that hinder international trade in Nigeria?

1.3 OBJECTIVES OF THE STUDY

International trade has been an “Engine of growth” for the global economy and Nigeria in particular. Large dissenting voices in the 20th Century claim that international trade only perpetuates the under-development of poor countries due to the fact that there is a disproportionate share of gains from international trade that accrues to industrialized countries. We shall focus on the following objectives.

1.   To examine the relationship between international trade and economic growth.

2.    To examine the impact of international trade on economic growth of Nigeria.

3.   To examine the factors that hinder international trade in Nigeria.

1.4 RESEARCH HYPOTHESIS

Ho: That there is no relationship between international trade and economic growth in Nigeria.

H1: That there is relationship between international trade and economic growth in Nigeria.

1.5 SIGNIFICANCE OF THE STUDY

This study will be an invaluable tool for students, researchers, research institutions and the general public that partake in international trade who wants to know more about the impact of international trade on economic growth of Nigeria.

1.6 SCOPE AND LIMITATION OF STUDY

The scope of the study will span 30years, that is, (1980 – 2009). The empirical analysis shall focus on the impact of international trade on the country’s economic growth. The gross domestic product (GDP) shall be used as the indicator for economic growth. The limitations encountered during this research work were; inadequate funds, accessibility of data and limited time frame.

1.7 SIGNIFICANCE OF THE STUDY

This study was conducted in order to ascertain the level to which economic growth has been propagated by growing international trade on economic growth in the Nigerian. This research work, apart from achieving its main objectives, will contribute immensely in aiding the government, policy makers, economic planners, researchers and the academia in general.

Government: This study will provide an insight and understanding to the government on how to be prudent in spending public funds to boost the international trade in order to bring about economic growth and development.

It help in providing an insight and knowledge to the general public, policy makers.

Academia: The findings of this study will contribute to current scenario of international trade in Nigeria and level of its contribution to the GDP.

In view of this, this study is necessary so as to go deeper in unveiling and laying bare some other international trade economic growth in the country which available studies have not really brought to light.

The result of this study would be of use to policy makers both in the public and private sectors of the Nigerian economy. It would also be of use to other developing countries especially those at the same level of development as Nigeria and in particular, those economies that rely on international trade. Also, it would help policy makers to identify the relationship between international trade and economic growth and hence find ways of realizing the full benefits of international trade to the Nigerian ‘economy.

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.

Trade: This is the exchange of goods and services within a country (domestic or home trade) or between countries (international or foreign trade).

Trade Liberalization: This is defined as a move towards freer trade through the reduction of tariff and other barriers and is generally perceived as the major driving force behind globalization.

1.9 ORGANIZATION OF STUDY

The effort to investigate the impact of international trade on economic growth in Nigeria is structured into five chapters. Chapter one gives an introduction of the topic. Chapter two gives a review of relevant literature, while the analytical framework and methodology used in analyzing the data is presented in chapter three. Chapter four discusses the empirical results. And chapter five closes out the study with the summary of major findings, conclusion and policy recommendations.