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THE IMPACT OF TRADE LIBERALIZATION ON POVERTY ALLEVIATION IN NIGERIA

ABSTRACT

The study examined the impact of trade liberalization on poverty alleviation in Nigeria, for the period of 1986 - 2016.  (32years). It was established in the study that before the introduction of trade liberation,  trade sector funds were grossly mismanaged, contracts and positions were awarded based on ‘connection’ rather than on merit and high occurrence of corruption in Nigerian trading sector. Since trade liberation has been seen as an important instrument tool to be used by the government to improve the economy, the appropriate growth from trade have strengthened all sectors in Nigeria economy and minimize the incidence. The result showed that Trade Liberalization does not have a significant impact on poverty alleviation in Nigeria for the period of 1986 – 2016. It is concluded that Trade Liberalization does not have a significant impact on poverty alleviation in Nigeria for the period of 1986 – 2016 (32 years). The study suggested that; The government should improve the state of infrastructures in the country. This will encourage meaningful trades in the economy; The Central Bank of Nigeria should come-up with policies that will help to stabilize the Naira exchange rate vis-à-vis the major currencies of the world, like the United States Dollar. This will boost the trading’ confidence in the economy; There is need to have a stable political and economic environment and improve on the critical infrastructure, level of security at all levels in the country; Systems of governance should be based on accountability, transparency, effective and efficient resource.

CHAPTER ONE

INTRODUCTION

1.1       Background to the Study

Trade has operated as an important engine of growth for countries right from historical ages at diverse stages of development, not only by contributing to a more competent allocation of resources within countries, but also by spreading growth from one part of the world to another. Over the past numerous decades, the economies of the world have come to be increasingly linked, through trade expansion. International trade has often played a central role in the historical experience of the developing world. Because of the economic impact that trade has always had on civilizations, governments often become involved in trade with the goal of producing a particular economic effect for their countries. There are, however, static and dynamic gains from trade between countries, but there is nothing in the theory of trade that says that the gains are fairly distributed (Echekoba, Okonkwo and Adigwe, 2015).

Trade liberalization started in 1947, after the 2nd World war, with the foundation of the General Agreement on Tariffs and Trade (GATT). The GATT was negotiated in 1947 by 23 countries of which 12 are industrialized countries and 11, developing countries. The pivotal point of the GATT was to lesser trade barriers. GATT was later changed by the WTO (World Trade Organization) in 1994. Fundamentally, the key purpose of trade liberalization is to allow countries to export those goods and services that they can produce efficiently, and import the goods and services that they produce inefficiently. The above statement refers to the theory of comparative advantage. Traditional explanations of trade as “the engine of growth” and the impact of trade on economic development are rooted in the principles of comparative advantage (Echekoba et al., 2015).

The discussion on trade liberalization and its impact of poverty has remained a subject of debate in several forums both at international and local level. This debate has been extended by the fact that there are not theoretical underpinnings that directly link trade liberalization to poverty. Trade liberalization is the removal or reduction of barriers to trade that ensures free movement of goods and services from one nation to another. Trade liberalization affects the direct determinants of poverty such as consumption, employment and incomes.

McCulloch et al (2010) have attempted to draw the linkage between trade liberalization and poverty. In their work, they show that one major pathway through which trade liberalization affects poverty is in trade creating liberalization where there are economic effects on prices changes of traded goods, labour market and government revenue. All these in turn affect the level of consumption, income and endowments at the household level. Cicowiez and Conconi (2012) provide a good perspective on the trade-poverty relationship, according to them, poverty is a public policy challenge that needs to be addressed, while trade liberalization is an important part of a policy package that can be used to spur economic growth and potentially reduce poverty.

Cloutier et al (2012) further explain that from the income perspective, trade liberalization tends to affect incomes since it affects resource allocation in the economy, as a result any changes in factor remunerations affects household incomes. Hence if the factors that households use abundantly are positively affected, then incomes tend to increase. Furthermore, trade liberalization also affects the structure of consumption through prices, if households consume more goods with lower prices, then consumption tends to increase depending on the nature of the good in question. The income and consumption effects will determine whether poverty levels rise or decline.

Ravallion (2013), examines the relationship between trade openness and poverty. He reported in his study that trade openness is a powerful force in reducing poverty in the developing countries. Dollars & Kraay (2011), used regression for the selection of the most globalized countries growth rate against their trade openness and found that increase in the volumes of trade subsequently influence the growth and living standard of the poor. They concluded in their study that trade openness stimulates growth while growth enhances the income of the poor. To put differently, openness of trade reduces poverty.

1.2     Statement of the Problem

In spite of the growth advantage associated with trade liberalization, some scholars equally observed its adverse effects on the living standard of the poor populace. Agenor (2012), observed that trade liberalization can reduce unskilled labor. His observation is based on the assumption that openness through technology can possibly displace the role of thumb or manual labor, because liberalization of trade stimulates auto-centric world resulting to a cut in the use of unskilled workers. This decline in the demand for unskilled workers will increase the level of unemployment especially among unskilled poor populace that lack the capacity to compete in the modern sectors employment. This definitely, was reverberated by Vasquez (2012), when he said that trade has negatively affected the wellbeing of the poor. Winter (2010) contributing to this intellectual investigation, found that liberalization of maize in Zambia resulted in closure of market for corn in the rural communities in Zambia causing more poverty for the poor rural farmers.

By and large, the popular ovation for trade liberalization is that it spawns growth and alleviates poverty. On the basis of its strength, the Nigerian government made a practical effort to intensify its international trade engagement as well as engaging in domestic policies and programmes to fight against poverty. Nigeria prominent role in the campaign for trade liberalization in Africa and its sub- region has not alleviated poverty in Nigeria, as she previously classified among the poorest nations in the world (Aremu, 2016), and its citizens feed on less than one dollar a day. Against this background, this study will check if trade liberalization limits government’s efforts in mitigating poverty in Nigeria. Also if trade liberalization limits the growth of infant industries which government’s poverty reduction policies and programmes intended to nurture. These and many others shall be assessed upon the interface of government policies and programmes established to tackle/alleviate poverty among the people.

1.3       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.

1.  To study the trend and pattern of poverty rate in Nigeria.

2.  To assess various programmes government used in poverty alleviation in Nigeria.

3.  To examine the impact of trade liberalization on poverty alleviation in Nigeria.

4.  To suggest policy recommendations for the government to alleviate and improve poverty situation in Nigeria.

1.4       Research Questions

In the light of the objectives of the study, the following research questions will be answered in the study:

1.  What is the trend and pattern of poverty rate in Nigeria?

2.  To what extent are various programmes government used in poverty alleviation in Nigeria?

3.  What is the impact of trade liberalization on poverty alleviation in Nigeria?

1.5       Research Hypothesis

The hypothesis below will be tested in the study

Ho: Trade Liberalization does not have a significant impact on poverty alleviation in Nigeria

H1: Trade Liberalization has a significant impact on poverty alleviation in Nigeria.

1.6       Scope of the Study

The study on trade liberalization on agriculture in Nigeria will be limited to Nigeria alone for the period of 1986 - 2016. The main aim of this research is to evaluate the influence of trade liberalization on poverty alleviation on the Nigerian economy as a whole. Ordinary Least Square estimation technique will be used to study the relationship between the variables of the Study. However, Poverty Alleviation in Nigeria is the dependent variable which will be measured with Poverty rate while Trade Liberalization is the independent variable which will also be measured with Trade Openness and Exchange Rate. The researcher might also face limited data constraints and thus the limited resources since data is basically from secondary sources.

1.7       Significance of the Study

Nigeria as a whole needs an immediate response to its economic problems which are basically buttressed by unemployment, high rate of population and poverty as a whole. If adequate tools are given to the right and experienced set of people at the right time and in the right way the Nigerian economy would be set to be lucrative. The Nigerian government as a whole would be able to widen their knowledge on ways or actions to take to ensure that these conditions contained in the policies are strictly adhered to with the availability of this information which old be a beneficial result in the future.

The study of this research helps investors to make adequate decisions based on the changes in the country’s trade policy, to expose them to the benefits and harmful effects of trade liberalization and helps them know how to invest their funds. It will also help students in gathering data in their individual fields of study, it also helps the general public in knowing detailed information as regards trade activities in Nigeria.

It is expected that further research on impact of trade liberalization on poverty alleviation would give students, investors, bankers, governments and other related areas results for welfare improvement, economic growth and policy recommendation guideline. It will serve as a guide to further research, academic work and as a self-help study material for those who might wish to first-hand knowledge about poverty alleviation and trade liberalization.

1.8       Chapter Outlines

There are five chapters in the study.

Chapter one is majorly the introduction to the research study, the chapter comprises of  the background information to the study, statement of the research problem, research questions,  research objectives, research hypothesis, scope and limitations of the study, significance of the  study, organization of the study and finally the definition of operational terms.

Chapter two is the literature review and theoretical framework which has just two sub- headings for discussion which are the theoretical review and the theoretical framework.

Chapter three is the research methodology which consists of six sub-headings which are description of the study area, sources of data; techniques of data analysis, model specification and model estimation.

Chapter four is the data analysis and interpretation of results which is regression analysis and trend analysis of the variables of the study.

Chapter five consists of the summary, conclusion and recommendation.

1.9       Definition of Terms

Trade: Trade is a basic economic concept involving the buying and selling of goods and services, with compensation paid by a buyer to a seller, or the exchange of goods or services between parties. The most common medium of exchange for these transactions is money, but trade may also be executed with the exchange of goods or services between both parties, referred to as a barter, or payment with virtual currency, the most popular of which is bitcoin.

Trade Liberalization: Trade liberalization is the removal or reduction of restrictions or barriers on the free exchange of goods between nations. This includes the removal or reduction of tariff obstacles, such as duties and surcharges, and nontariff obstacles, such as licensing rules, quotas and other requirements.

Liberalization: Liberalization (or liberalization) of the economy means to free it from direct or physical controls imposed by the government. This may be similar to deregulation. Liberalization of autocratic regimes may precede democratization

Trade: a basic economic concept involving the buying and selling of goods and services, with compensation paid by a buyer to a seller or the exchange of goods and services between parties.

Poverty: the state or condition in which a person or community lack the financial resources and essentials to enjoy minimum standard of life and well-being that’s considered acceptable in society.

Poverty alleviation: Poverty reduction, or poverty alleviation, is a set of measures, both economic and humanitarian, that are intended to permanently lift people out of poverty.

Import: this is a good or service brought into one country from another

Exchange rate: The price of a nation’s currency in terms of another currency. An exchange rate thus has two components, the domestic currency and a foreign currency, and can be quoted either directly or indirectly. In a direct quotation, the price of a unit of foreign currency is expressed in terms of the domestic currency. In an indirect quotation, the price of a unit of domestic currency is expressed in terms of the foreign currency.

Foreign exchange: the exchange of one currency for another or the conversion of one currency into another currency. It also refers to the global market where currencies are traded virtually around the clock.

Growth rate: this refers to the percentage change of a specific variable within a specific time period given a certain context.

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