ABSTRACT
This research work studies the international competitiveness of the Nigerian economy in the global market by analyzing the relationship between trade openness and output growth in Nigeria. Using time-series data over the period 1970-2007, we show that output growth of the Nigeria economy is a function of two sets of shocks; (i) external shocks (openness and real exchange rate) and (ii) internal shocks (real interest rate and unemployment rate). A non-monotonic and an ANCOVA econometric models are postulated in order to capture the structural pattern of the relationship between openness and output growth as well as the policy effect of structural Adjustment program (SAP). The result shows that there is an inverted U-shape (no-monotonic) relationship between openness and output growth in Nigeria and the optimum degree of openness for the economy is estimated to be about 67%. Also, the liberalization policy of the SAP has positive economic effect on the output growth. The ECM reveals that 79% of the equilibrium error is being corrected in the next period. We concluded that unbridled openness may have deleterious effect on the real growth of output of the Nigerian economy.
During the period 1960-1997, Nigeria’s growth rate of per capital GDP of 1.45% compares unfavorably with that reported by other countries, especially those posted by china and the Asian Tigers such as Hong Kong, Singapore, Taiwan, and south Korea, viewed in this comparative perspective, Nigeria’s per capital income growth has been woefully low and needs to be improved upon. (Iyoha and Oriakhi, 2002). In like manner, ogujiuba, Oji and Adenuga (2004) wrote that the Nigerian economy has severally been described as a diicult environment for business with a population growth of about 3%, it has been acknowledged that the current average output growth rate of less than 4% will see the country being poorer in the next decade. A study conducted by Iyoha and Oriakhi (2002) on Nigeria’s per capital GNP from 1964 to 1997 show that it rose steadily from US$120 to US$780 in 1981. Thereafter, it fell almost steadily to US$280 in 1997. Thus, between 1964 and 1981, income per capital increased by 550% or at an annual average rate of 32.3% while between 1981 and 1997, it fell by 64.1% or at an annual average rate of 4%. It is worth noting that if income per capital had continued to increase beyond 1981 as it did before then, Nigeria’s GDP per capital would have equaled US$1,279 in 1997. The difference between US $280 and US$1,279, i.e, approximately, US$1,000.00, is a rough measure of the cost to the average Nigerian of domestic macro economic policy mistakes and adverse international economic shocks. Likewise in 1960 agricultural exports accounted for only 2.6%. Exports of other commodities like tin and processed goods amounted to 26.6% of total exports. By 1970 agricultural exports only accounted for 33% of total exports while petroleum exports had started to establish dominance by exceeding 58% of total exports. By the time the oil boom began in earnest in 1974, petroleum exports accounted for approximately 93% of all exports. The relative share of agricultural exports in total exports had shrunk to 5.4% while other products accounted for the remaining 1.9%. Since 1974, with the exception of 1978 when the relative share of petroleum in total exports has exceeded 90%. In deed, since 1990, the relative share of petroleum in total exports has exceeded 96%. Agricultures contribution has fluctuated between 0.5% and 2.3% while the share of other products has fluctuated between 0.5% and 1.7%. Thus petroleum exportation has totally dominated the economy and indeed government finances since the mid-1970s. Meanwhile, a puzzling and disturbing aspect of Nigeria export boom is that the growth it generated did not seem to be lasting or to have had a significant effect in changing the structure of the economy. For instance, in the 1970’s there was a major increase in measured GDP but the structure of the economy remained basically unchanged (see figure 2 below).
This led professor Yesufu (1995) to describe the Nigerian economy as one that had experienced “growth without development’’. Figures 2: trend of real GDP Year During the period of 1970 – 1985, import substitution industrialization (ISI) strategy was a dominant feature of trade policy in Nigeria. The trade policy was generally inward oriented. Under this ISI strategy, “Infant” manufacturing industries were protected using high taris, import quotas, and other trade restrictions like import licensing. Non-tari barriers to trade such as import prohibitions were also utilized. During this period, trade policy was also adjusted in response to the exigencies of the balance of payments. Also, Nigeria was operating a fixed exchange rate regime under which the value of the Naira was essentially tied to US dollar and gold. It is worth noting that the trade policy pursued during this period resulted in a rapid increase in manufacturing production and employment, particularly during the era of the oil boom (1975 -1980) and that led to a rise in the share of manufacturing in Gross Domestic product (GDP) from 5.6% in 1962/63 to 8.7% in 1986. (Iyoha and Oriakhi, 2002). In 1986, Nigeria adopted the structural adjustment programme (SAP) of the IMF/World Bank. With the adoption of SAP in 1986, there was a radical shi from inward-oriented trade policies to out ward –oriented trade policies in Nigeria. These are policy measures that emphasize production and trade along the lines dictated by a country’s comparative advantage such as export promotion and export diversification, reduction or elimination of import tariffs, and the adoption of market-determined exchange rates some of the aims of the structural adjustment programme adopted in 1986 were diversification of the structure of exports, diversification of the structure of production, reduction in the over-dependence on imports, and reduction in the over-dependence on petroleum exports. The major policy measures of the SAP were: · Deregulation of the exchange rate · Trade liberalization · Deregulation of the financial sector · Adoption of appropriate pricing policies especially for petroleum products. · Rationalization and privatization of public sector enterprises and · Abolition of commodity marketing boards.
However, as a result of trade liberalization gospel of the SAP, the Nigeria external sector really experience dramatic growth. For instance, the total domestic exports of Nigeria in 2006 amounted to N755141.32 million against N6621303.64 million in 2005 showing an increase of 14.10%. Domestic exports recorded negative growth rates in 1993 (7.70%), 1994 (45.5%), 1997 (2.03%), 1998 (38.48%) and 2001 (27.06%); while it recorded positive growth rates in other periods. The largest increase in domestic exports was witnessed in 1995 (448.42%). Total imports (C.I.F) stood at N2922248.46 in 2006 as against N1779601.57 million in 2005 recording an increase of 64.20%. Total imports also recorded negative growth rates in 1994(45.72%),1998(9.41%) and 2004(18.07%) while it is positive all through other years. The value of total merchandise trade amounted to N10477389.78 million in 2006 as against N45272.24 recorded in 1987. External trade was dominated by domestic exports between 1987 and 2006 averaging 67.17% while imports (C.I.F) averaged 32.82% (see figure 3 below), consequently, the trade balance was positive between 1987 and 2006. Oil export remains the dominant of export trade in Nigeria between 1987 and 2006 accounting for about 93.33% of total domestic exports. On the other hand, non oil exports accounted for a small value of 6.67% over the same period. (NBS report, 2008).
