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The Impact Of International Trade On Economic Growth Of Nigeria

CHAPTER ONE

INTRODUCTION

1.1       Background Of The Study

In our economy today we are privileged to make use of the advanced world countries’ products having risen from improved or advanced technologies of the world. We even eat their type of food, wear their type of cloth, drive in their kind of cars etc. without having to do all these in their country. Also we enjoy the best of products from neighboring countries without having to travel there to get or use it. All these are made possible by international trade. International trade has a direct effect on the economy of any country as the country sees the need for the exchange of ideas, products and technologies. This effect could either be positive or negative at each given point in time.

International trade can be traced back to the need for exchange which evolved from the barter system to the money system. International trade became popular with the advent of the colonial rule that brought their wares and made Nigerians their middle men (Nick 2008). The classical and neo-classical economists have attaches so much importance to international trade in an economy’s growth that they even regard it as an engine of economic growth (Jhingan 2006) and so we can say that the performance of any economic in terms of growth rate of output and per capita income is not only based on the domestic production and consumption activities but it can also be based on the international transaction of goods and services. One of the major reasons why countries engage in international trade is to obtain the goods and services which they cannot produce in the home country or commodity which its cost of production is very high. To solve this problem, the classical economist, David Ricardo suggested that countries should specialize on the production and exportation of goods whose cost of production is low and import the product whose cost of production is high for the country. This is what Ricardo referred to as ‘the theory of comparative advantage’.

From the little write up above, we can see that international trade is actually a catalyst or speed up for economic growth and thus international trade has been of a great concern to policy makers in the country. For developing countries like Nigeria, its participation in international trade is high as most of the essential facilities for growth e.g. capital goods, technical know-how, raw materials are entirely imported because of inadequate domestic supply of these goods. Increased domestic demand sure reduces the expansion of exports, thus to enhance export capacity, improved technology must be imported which in turn raises the demand for imported goods. There is every tendency that import would be raised far above export which would result to an unfavorable balance of trade. Prolonged pressure on the country’s balance of payment shrinks economic growth and so appropriate economic policy measures have to be put in place to streamline international trade for the achievement of a desirable economic growth.

The Nigerian economy has overdependence on the capital intensive oil sector which provides about 15% of the GDP, 95% of foreign exchange earnings and about 75% of the government revenue. Nigeria which used to be a large net exporter of food now imports some of its food product as the agricultural sector could not cope with the increasing population growth. The overdependence on the oil sector has not only led to unbalanced trade but has resulted to economic fluctuations and this has been a major challenge for Nigeria. Even the Structural Adjustment Programme of 1986 whose major aim was to diversify the productive base of the economy could not achieve this till date as we are still dependent on the

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