The Impact of Trade Liberalization on Poverty Alleviation in Nigeria
Chapter One
OBJECTIVES OF THE STUDY
The main objective of the study is to examine the impact of trade liberalization on poverty alleviation in Nigeria. Hence the following are the specific objectives.
- To study the trend and pattern of poverty rate in Nigeria
- To assess various programs the government used in poverty alleviation in Nigeria
- To examine the impact of trade liberalization on poverty alleviation in Nigeria
- To suggest policy recommendations for the government to alleviate and improve the poverty situation in Nigeria
CHAPTER TWO
LITERATURE REVIEW
INTRODUCTION
An open trading system is vital for prosperity and contributes to poverty alleviation at both the global and national levels. Being connected to the world economy does not guarantee poverty alleviation, but there are few, if any, examples of countries that managed to sustain high rates of growth while staying disconnected from international production and financial networks.
National institutions and policies largely determine the ways that globalization and trade affect labor market performance. This report highlights the importance of a comprehensive policy approach to address adjustment problems and distributional concerns. Policies to maximize the gains from trade and ensure that workers and consumers reap the maximum benefits start with effective labor market institutions that temporarily protect workers, facilitate adjustment, and enhance mobility in the labor market. Other pro-growth, pro-poverty alleviation measures to accompany more open trade include stable macroeconomic policies, investments in education and human capital, and initiatives to enhance supply capacity in developing countries.
This report summarises the current state of the debate and our understanding of the links between trade liberalization, poverty alleviation, and growth. The sections that follow review the main results from our research, including new analysis undertaken at the OECD. We consider how the recent economic crisis has affected trade and poverty alleviation and highlight how policies could promote strong, sustainable, and balanced growth in the years ahead. The technical Appendix to this report reviews the main developments in recent scholarship on the relationship between trade and poverty alleviation.
Trade liberalization, when embedded in an appropriate overall policy framework, will foster growth and improve poverty alleviation outcomes. The phenomenal growth performance of East Asian countries in recent decades, for example, took place at the same time that these countries were becoming more open. This process was driven by trade liberalization (often accompanied by investment reforms), as well as pro-growth macroeconomic policies and forward-looking measures to promote human capital formation, gender-neutral education, and investment in infrastructure.
CHAPTER THREE
THEORETICAL FRAMEWORK AND RESEARCH METHODOLOGY
THEORETICAL FRAMEWORK
Earlier debate on the role of trade in labor market outcomes is based on the well-known Heckscher-Ohlin theorem. However, the theory asserts that there is always a Poverty index such that international trade will only lead to a reallocation of labor across sectors of the economy. Given this assumption, the issues of trade-related poverty do not arise as trade does not affect the aggregate level of the Poverty index. However, some developing countries such as Nigeria are characterized by the Arthus Lewis type of surplus labor, therefore trade might have some implications for the country’s Poverty index.
Apart from the old and new trade theories, the vent for surplus theory has also pointed out the implication of trade for Poverty index. The vent for surplus theory by Myint (1958) posits that developing countries are characterized by unproductive surplus labor, surplus land, and natural resources that are idle and thus ‘unproductive’ and they can be brought into productive uses by opening up to trade or intensifying trade relations. Therefore, international trade can serve as a vent for surplus as it creates new effective demand for the output of surplus resources that would otherwise remain unused. Myint (1958) and Smith (1976) argued that international trade will lead to the utilization of surplus resources, consequently generating more demand for surplus labor and/or other surplus resources. Therefore, given Nigeria’s surplus resources, increased trade can serve as a vent for its surplus labor consequently generating more demand for labor.
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS , AND INTERPRETATION OF REGRESSION OUTPUT
DATA PRESENTATION
This study makes use of secondary data which were collected from the Central Bank of Nigeria Statistical Bulletin (2013).
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
SUMMARY
This research work is on the impact of trade liberalisation on Poverty index in Nigeria. The main objective of this study is to empirically examine the impact trade liberalisation on Poverty index in Nigeria. This research work made use of secondary data which were obtained from the Central bank of Nigeria Statistical Bulletin (2013). The data were collected for a period of thirty three years (i.e. 1981-2013). The Ordinary Least Square Regression Technique was employed in the analysis of the data.
The result of the regression analysis in the first model reveals that degree of trade openness had positive relationship but not statistically significant, while import and export had negative relationship with Poverty index. Import wasn’t statistically significant but export was statistically significant to Poverty index in Nigeria. Adjusted R-square is 75.91%, showing the high forecasting power of the model, and F-statistics is also significant showing the reliability of R-square.
The result of the regression analysis in the second model reveals that degree of trade openness had positive relationship and was also statistically significant, while import, export, and exchange rate had negative relationship with Poverty index. Import and export wasn’t statistically significant but exchange rate was statistically significant with Poverty index in Nigeria. Adjusted R-square is 88.13%, showing the high forecasting power of the model, and F-statistics is also significant showing the reliability of R-square.
CONCLUSION
This research work has examined the impact of trade liberalisation on Poverty index in Nigeria. Based on the empirical analysis, it is concluded that trade liberalisation has significant impact on the Poverty index growth of Nigeria.
The question for Nigeria is not whether to trade but in what to trade and the terms on which it trades with itself and the rest of the world. Regional integration may bring some benefits if wisely designed, but more important is to get the right growth fundamentals of high levels investment of physical and human capital, good governance, and a structure of production that gives scope for scale economies and high productivity which at the same time produces goods, the world demand for which is rising fast. If this requires elements of protection, countries must not be afraid to deviate from free trade. There are legitimate economic grounds for protection if it will raise income and output above what would otherwise be the case.
Therefore, based on the findings of this study, we conclude that since the fall in wage differentials between registered and non-registered workers as well as the proportion of registered workers are two stylized facts of the Nigerian labour market in the 1990s and 2000s, the government should encourage the informal sector by lending out money to its operators in order to be able to set up enterprise that will compete favourably with their counterparts abroad
RECOMMENDATIONS
Based on the findings of this research work, the following policy recommendations should be applied in order to generate more Poverty index opportunity through trade liberalisation.
- That government should encourage the informal sector by providing the needed financial and infrastructural facilities to facilitate their smooth operations. If these are done, the micro enterprise will be able to employ more people and pay the required wages to their employees and compete with their counterparts in the advanced countries.
- The formal manufacturing sector should also be provided with the necessary logistics in terms of the access to raw materials and infrastructure / social amenities to make their operations effective, this way they will be able to employ more and pay commensurate salaries to their workers.
- The gap between the wages earned by registered and non-registered workers should be narrowed as much as possible. One of the ways to do this is via trade liberalization which opens up the economy to international trade, where informal sector enterprise will be able to export their goods and earn income with which they can pay their employees.
- Government should employ sound macroeconomic policies that would stabilize prices, exchange rate, subsidize interest rates, hence bring about increase in participation (Poverty index creation) in international thereby gains from trade in return vis a vis increased national income.
- Government should ensure that there is an increase in technology and also educate the masses on newly invented technologies. Awareness in technology must also be created in the industrial sector of the economy. This is because “Industrialization leads to growth and development” of any country.
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