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This study empirically analyzed the impact of international trade on economic growth in Nigeria. The objective of this study was to examine specifically the role and contribution of exports, imports, foreign direct investment and foreign exchange on economic growth in Nigeria. In executing this study, data were collected from secondary sources while Ordinary Least Square (OLS) techniques were used in the analysis. The study observed that international trade have not contributed a lot to economic growth in Nigeria but other indicators exert enough pressure on the strength of the economy. The study recommends that for governmental encouragement in the development of strong linkage between exchange rate and interest rate in order to facilitate the increasing trend of foreign trade in third world developing into Nigeria.
Certification Page ii
Approval Page iii
Table of Contents vi
CHAPTER ONE: INTRODUCTION
CHAPTER TWO: LITERATURE REVIEW
2.1 Theoretical Literature Review 7
2.1.1 Conceptual Literature Review 7
2.1.2 Review of Basic Theories 9
2.2 Empirical Literature Review 27
2.3 Summary of Literature Reviewed 35
2.4 Justification for the Study 36
CHAPTER THREE: RESEARCH METHOD
3.1 Theoretical Framework 37
3.2 Model Specification 38
3.3 Estimation Technique 39
3.3.1. Stationarity test (unit root test) 40
3.3.2. Johnson Co-integration Test 40
3.4 Evaluation of Estimates 41
3.4.1 Economic Criteria 41
3.4.2 Statistical Criteria 42
3.4.3 Econometric Criteria 42
3.5 Test of Research Hypotheses 43
3.6 Nature and Sources of Data 44
CHAPTER FOUR: RESULT PRESENTATION, ANALYSES AND DISCUSSION OF FINDINGS
4.1 Result Presentation 45
4.1.1 Summary of Unit Root Tests (Stationarity Tests) 45
4.1.2 Summary of Johansen Co-integration Test 46
4.1.3 Error Correction Mechanism Result 48
4.2 Interpretation of Result 49
4.2.1 Economic Criteria 49
4.2.2 Statistical Criteria 50
4.2.3 Econometric Criteria 3
4.3 Evaluation of Research Hypothesis 49
4.4 Discussion of Findings 51
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary 53
5.2 Conclusion 54
5.3 Recommendations 54
5.4 Agenda for Further Studies 55
International trade is the exchange of capital, goods and services across the international borders or territories. In most countries such trade represents a significant share of Gross Domestic Product (GDP). Therefore, international trade has been an area of interest to policy makers as well as economists. It enables nations to sell their domestically produced good to other countries of the world (Adewuyi, 2002). International trade has been regarded as an engine of growth, which leads to steady improvement in human status by expanding the range of people’s standard and preferences (Adewuyi, 2002). Since no country has grown without trade, international trade plays a vital role in restructuring economic and social attributes of countries around the world, particularly, the less developed countries. Furthermore, over the years, development economists have long recognized the role of trade in the growth process of national economies as trade provides both foreign exchange earnings and market stimulus, for accelerated economic growth.
The economic growth of Nigeria to large extent depends on her trade with other nations. Nigeria as a developing country has been grappling with realities of developmental process not only politically and socially but also economically. In 1960s, agriculture was the main stay of the economy and the greatest foreign exchange earner, and Nigerian government was able to execute investment projects through domestic savings, earnings from exports of agricultural products and foreign aids (Ezike, 2011). But since the advent of oil as a major source of foreign exchange earning in Nigeria since 1974, the picture has been almost that of general stagnation in agricultural exports. This led to 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, agriculturaland agro-allied exports constituted an average of sixty percent of total export in Nigeria, which is now accounted for, by petroleum oil export, (CBN annual report 2004).
The importance of international trade in the Nigerian economy has grown rapidly in recent time, especially since 2002 to 2016. Economic openness measured as the ratio of export and imports to GDP has risen from just above 3 percent in 1991 to over 11 percent in 2008 due to the unrest in Nigeria’s oil producing Niger Delta region which resulted in significant disruption in oil production and shortfalls in oil export from Nigeria. Promotion of economic growth is one of the major objectives of international trade, but in recent times, this has not been the case because the Nigerian economy is still experiencing some elements of economic instability such as price instability, high level of unemployment and adverse balance of payments. Furthermore, the benefits of international trade had not been noticed in the economic growth of Nigeria because some of the goods imported into the country were those that cause damages to local industries by rendering their products inferior or and being neglected, thereby reducing the growth rate of output of s oh industries which later spread to the aggregate economy. Also the poor performance of international trade has been ostensibly blamed on factors such as different languages, difficulty in transportation, risk in transit, lack of information about foreign businessmen etc. Despite the above mentioned problems the study seeks to find answers to the following questions: Does international trade stimulates economic growth in Nigeria? Do trade policies have impact on international trade in Nigeria?
Therefore, this study seeks to examine the impact of international trade on economic growth in Nigeria. In other words, how activities in international trade transmit to economic growth in Nigeria.
1.2 Statement of the Problem
Nigeria has suffered a long-term deterioration in terms of trade and subsequent persistent balance of payment deficit despite concerted efforts in export promotion strategies. In fact, contrary to the expectation, the growth rates have instead declined from as high as 3.6% annual growth rate of 1984-2004, just before the policy change to unimaginable negative growth. In fact according to the World Development Indicators data base by the World Bank Group of August, 2008, Nigeria economic growth rate has dwindled over the years to the extent of experiencing a negative GDP annual growth of negative 0.2% in 2000 despite the fact that exports of goods and services accounted for 26.2% of the total GDP in the same period. It is plausible to state or observe further that Nigeria GDP has persistently dragged behind exports and imports. In fact, it is evident that the fate of GDP has somehow ‘depended’ upon exports and imports trends such that when both variables are declining, the GDP tends to decline and vice versa.
The research problem of the study is that; Despite the Export Led Growth (ELG) strategy in which the government has deliberately pushed for exports and opened its domestic market for foreign competition, Nigeria has continued to have trouble in realizing an economic growth rate of at least 10 percent. The study therefore seeks to examine the reason why that is so; as a development problem. This study shows that Nigeria participation in International trade through her Export Led Growth strategy has increased the probability of achieving rapid economic growth. The general research question to be answered at the end of the study is; does trade really lead to economic growth in a country? Few studies have been done on Nigeria performance in International trade but an important link on its actual impact on the economic growth has not been explicitly focused. It appears however4that a general assumption has been takenthat those countries that participate in international trade especially through export promotion have automatically recorded higher economic growth
The main objective of this study is to examine the impact of international on economic growth in Nigeria.
The specific objectives are;
This study will empirically test the following hypotheses;
H0: There is no significant relationship between exports and GDP in Nigeria.
Hi: There is significant relationship between exports and GDP in Nigeria.
Ho: There is no significant relationship between imports and GDP in Nigeria
Hi: There is significant relationship between imports and GDP in Nigeria.
Ho: There is no significant relationship between foreign exchange and GDP in Nigeria
H1: There is significant relationship between foreign exchange and GDP in Nigeria.
Ho: Foreign direct investment do not contribute to the variance in GDP in Nigeria
Hi: Foreign direct investment contribute to the variance in GDP in Nigeria
The study concentrated on how impact of international trade on economic growth in Nigeria. Annual time series data will be employed by this study to conduct the investigation. The researcher encountered the following constraint in the course of this work, data constraint or unavailability of data on some variables, finance to facilitate the study and so on.
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.
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.