TRADE OPENNESS AND OUTPUT GROWTH IN NIGERIA: AN ECONOMETRIC ANALYSIS 1970-2007

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 difficult 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 capita 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.