The study examines the impact of import and export growth on economic growth in Nigeria, using export, import, exchange rate and trade openness as proxies for import and export trade (international trade) while Gross Domestic Product represents economic growth. The broad objective of this paper is to analyze the impact of import and export trade on economic growth in Nigeria based on time series data on variables considered relevant indicators of economic growth and, import and export trade. The analysis was based on data extracted from Central Bank of Nigeria Statistical Bulletin. The study employed regression analysis as the method of analysis using co-integration and error correction modeling techniques to find the long-run relationship between economic performance and, import and export trade. The result of the analysis showed that all the variables except trade openness (TOPNES) were statistically insignificant. This means that Nigeria is running a monocultural economy where only oil act as the sole support of the economy without tangible support from other sectors such as industrial/manufacturing and agriculture. The government should therefore pursue aggressive diversification of the economy by putting in place policies and incentives that will boost non-oil export, the manufacturing sector and overall promote the industrial growth of Nigeria. Also, the study recommends that policy makers should adopt policies on trade liberalization such as reduction of non-tariff barriers, reducing tariffs, reducing or eliminating quotas that will enable the economy to grow at spectacular rates. And thus this study supports the proposition that degree of openness has direct robust relationship with economic growth since the proxy variable is positive and statistically significant in the model.
1.1 Background of the Study
The study of economic growth cannot be properly discussed without mentioning trade as an engine of economic growth, be it domestic trade or trade with other countries. The new classical economists, for example, drawing on historical evidence from the nineteenth Century, likened trade to an “engine of growth (Nurske, 1959). Also, Kravis (1970) dubbed trade to be the “handmaiden of growth”. It has, therefore, become imperative for every Government to pay keen attention to matters relating to trade especially how to attain a higher real productivity in the export sector.
The relationship between import, export (also known as international trade) and economic growth has been a very popular subject showing interest of policy makers and academics. The reason is simple. The main goal of almost every nation is to increase GDP and improve the quality of life for their citizens. In Nigeria, which is a developing country, international trade (import, export) is an important factor that affects GDP or economic growth.
Exports are goods and services produced domestically and purchased by foreigners. Net exports are the difference between total exports and total imports.
According to the Oxford Advanced Dictionary (7th ed.), Export can be defined as surplus goods and services of a country that are sent to other countries in the world for sale, while imports are goods and services brought into a jurisdiction, especially across a national border, from an external source.
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 attached so much importance to international trade in an economy’s growth that they even regard it as an engine of economic growth (Jhingan, 2003) and so we can say that the performance of any economy 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’.
Against this background, 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 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 unfavourable 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.
1.2 Statement of Problem
The importance of international trade in the development process has been of interest to development economists and policy makers alike. Imports and exports are a key part of international trade and the import of capital goods in particular is vital to economic growth. This is so because imported capital goods directly affect investment, which in turn constitutes the motor of economic expansion.
The Nigerian government as a developing country has come up with too many trade policies to boost the country’s balance of trade but this has not remarkably shown in our balance of trade as the policies have suffered from series of policy summersault and lacks consistency. A situation where any government that comes into power fails to uphold sound policies on ground will make the country look so unserious before the international communities.
Secondly, the problem of corruption has been a very big bug in the wheel of our international trade in Nigeria. The Nigerian government has effortlessly tried to brand and rebrand Nigeria and Nigerians before the international community, unfortunately the corruption stigma on us have made the global communities to be skeptical of every Nigerian and Nigeria such that nobody wants to purchase our product and believe in us.
Thirdly, lack of technical know-how has constituted a very big problem to us, an independent producing country. As much as Nigeria wants to produce for international consumptions, however, the country’s personnel lack the technical know-how to produce quality goods and services that can compete with other goods and services produced at the world market.
Again, political instability is another problem that has greatly militated against the development of export and import in Nigeria. Political instability is associated with a lot of uncertainties both to the importers and exporters of goods and services. The absence of political stability is a serious problem that needs to be addressed in order to convince both the domestic producers and foreign producers that the country can be relied upon for long-lasting economic activities (trade). Otherwise, trade will not be sustained.
Finally, but not the least, the Nigerian government has exhibited willingness to increase the volume of our export over import, but they are not and have not done much to strengthen the poor macroeconomic policies on ground. If the government must achieve its objective with respect to increasing our volume of trade, they must be ready to articulate sound macroeconomic variables to ensure the desired economic activities both domestically and internationally.
1.3 Research Questions
These are the questions which the study seeks to answer, and these questions will guide us through the course of this study:
- What is the impact of export on the economic growth (GDP) in Nigeria?
- What is the impact of import on the economic growth (GDP) in Nigeria?
- To what extent does exchange rate impact on the growth process in Nigeria?
- What is the impact of trade openness on the economic growth (GDP) in Nigeria?
1.4 Objectives of the Study
The broad objective of the study is;
to evaluate the impact of import and export on the economic growth (GDP) of Nigeria.
While the specific objectives are:
- To determine the impact of import on the economic growth (GDP) of Nigerian.
- To determine the impact of export on the Nigerian economic growth.
- To investigate the impact of exchange rate system on the economic growth (GDP) of Nigeria.
- To examine the impact of trade openness on the economic growth (GDP) of Nigeria.
1.5 Statement of Hypotheses
The research hypotheses to be tested in the course of this research study will all be stated in null forms as follows;
- H0: Export trade has no significant impact on the growth (GDP) of Nigeria economy.
- H0: Import trade has no significant impact on the growth (GDP) of Nigeria economy.
- H0: Exchange rate has no significant impact on the growth (GDP) of Nigeria economy.
- H0: Trade openness has no significant impact on the growth (GDP) of Nigeria economy.
1.6 Significance of the Study
This study is significant because international trade (import and export) is important in any economy as it is seen as one of the engine of economic growth and so it is important for us to view the ways on how we can maximize the benefits and minimize the loses from international trade.
Also this study will be useful to policy makers as it gives them an insight of the volume of trade thus assisting them to make policies which will exert positive influence on the balance of trade. Also the study is helpful to manufacturers, exporters and importers as it helps them to be aware of the policies on international trade, exchange rate and the degree of openness of the economy. The study is useful to foreign partners as this provides information on our resources and it presents us to them as an economy which is doing well internationally and this will help increase foreign investment which will aid economic growth. This study will be useful to researchers as it provides an econometric evidence of the impact of international trade on the growth of the Nigerian economy. Finally, the study would also statistically enrich and add to the existing body of knowledge in the area of international trade and its contributions to the economic growth of Nigeria.
1.7 Scope of the Study
The research work is confined to Nigerian economy. Therefore, data that were considered are those relating to Nigerian economy on effect of trade on economic growth in Nigeria. The study will basically cover a period of 31 years (1985 – 2016). This study will be as broad as possible as various articles and journals will be used to examine the volume of trade, exchange rate, degree of economic openness, and gross domestic product.
1.8 Limitations of the Study
This study is limited to international trade as it affects the growth and development of the Nigerian economy. A major constraint of this study is the insufficient time involved to complete the study and the problem of inconsistent and inaccurate data will give wrong results leading to wrong policy making.