EFFECT OF TRADE AND FINANCE ON ECONOMIC GROWTH AND DEVELOPMENT (A CASE OF CENTRAL BANK OF NIGERIA)


Content

ABSTRACT

Several statistical approaches were implemented to carry out this research, in which Central Bank of Nigeria (CBN), Nigeria Institute of Economic Research (NISER), National Bureau of Statistics (NBS) were involved, information  were adequately collected and analysed respectively. The purpose of the study is to evaluate the effect of trade and finance evaluates the effort of Nigerian economy on the on economic growth and development in Nigeria and its impacts on development.

 

The findings however, showed that trade and finance has a direct impact on the economic growth and development in Nigeria.

The philosophical and logical framework of this study is based on the" hypothesis that trade and finance plays veritable role in sustainable development- whether in the developed or growing economy. Both the controllable and non controllable variables were subjected to strict and critical analysis in line with the research question.

The findings of this work clearly showed that no nation can do without trade and commerce. Another interesting finding of the work is that finance enables and facilitates efficient and effective home and international trade thereby promoting sustainable economic development.

It is very instructive to point out that trade and finance impacts significantly to the wheel- of commerce. In summary therefore it is believed that the effect of trade and finance cannot be over-emphasized here due to the findings of this work which corresponds to previous findings of both the various authors and the statistical records of the Central Bank of Nigeria and World Bank respectively, which indicated that Nigeria with fast growing population will benefit greatly from the availability of sufficient capital and international trade.

 

 



 

 

TABLE OF CONTENTS

Approval page                                                                                           i

Declaration                                                                                                ii

Dedication                                                                                                  iii

Acknowledgement                                                                                     iv

Abstract                                                                                                     v

Table of Content                                                                              vi

 

CHAPTER ONE

1.0    Background of the Study                                                                1

1.1    Statement of Research Problem                                                     2

1.2    Purpose of the Study                                                                       3

1.3    Research Questions                                                                        4

1.4    Significance of the Study                                                                 5

1.5    Test of Hypothesis                                                                           7

1.6    Scope and the Delimitation of the Study                              8

1.7    Definition of Terms                                                                          8

 

CHAPTER TWO

2.0    Review of Related Literature                                                            10

2.1    Definition of International Trade                                                     10

2.2    Type of International Trade                                                             12

2.3    International Trade and Economic Growth                                    13

2.4    Features of International Trade                                                      16

2.5    Nigerian Trade Import                                                                     16

2.6    Nigerian Trade Export                                                           17

2.7    Importance of International Trade                                                 20

2.8    Other Possible Benefits of International Trade                              21

2.9    Economic Growth                                                                            22

2.10  Trade as an Engine of Growth Theoretical Perspectives               24

2.11  Theories of Economic Growth Old and New                        

Models Growth                                                                                27

2.12  Nigeria’s Current Trade Policy                                                       27

2.13  National Economic Empowerment and Development                  

          Strategy (Needs)                                                                               29

2.15  Dynamics of Trade Policy since 1960                                            32

2.16  Trade Policy Trends between 1960 – 1970s                                  33

2.17  Trade Policy Trends between 1980 – 1995                                    34

2.18  The Economic structural adjustment ERA in Nigeria                   35

2.19  Trade Policy under the needs ERA (1999 – 2006)                         36

2.20  Duty Exemption and concessions                                        38

2.21  Import Prohibition                                                                           39

2.22  Export diversification as a key component of trade                      40

2.23  America International Trade                                                           42

2.24  US Trade Policy                                                                               42

2.25  The World Trade Organization (WTO)                                             43

2.26  France and international trade                                                      43

2.27  France Export                                                                                  49

2.28  France Imports                                                                                49

2.29  United Kingdom and International Trade                                      50

2.30  UK’S Import and Export Indicators and Statistics at a

          Glance (2010)                                                                                  51

2.31  Jordan                                                                                              53

2.32  Other Possible Benefits of International Trade                              55

2.33  Barriers of International Trade                                                      55

           

 

CHAPTER THREE

3.1    Research Design                                                                              58

3.2    Population of the Study                                                         59

3.3    Sampling Size and sampling procedure                     59

3.4    Sampling Techniques                                                             60

3.5    Method of Data Collection                                                     60

3.6    Method of Data Analysis                                                                 60

 

CHAPTER FOUR

4.0    Presentation of Data Analysis and Interpretation                         61

4.1    Presentation of Data                                                                        61

4.2    Model Specification                                                                         64

4.3     Data Analysis                                                                                  64

 

CHAPTER FIVE

5.0    Discussion of Findings, summary, conclusion and

          Recommendations                                                                           68

5.1    Introduction                                                                                     68 

5.2    Discussion of Findings                                                                    68

5.3    Summary                                                                                         69

5.4    Recommendation                                                                             71

5.5    Conclusion                                                                                       73

5.6    Suggestions for further research                                                    74

 

REFERENCES                                                                            75

 


 

CHAPTER ONE

1.0 BACKGROUND OF THE STUDY

This study is basically under taken to take an objective view of the impact of international trade, initially with predominately a grain product, but presently dominate by petroleum products. Since the discovery of oil in commercial quantity at Oloibiri in the present day Delta State, Nigeria has been an important player in world affairs, economically and other wise, particularly being the 6th largest producer of crude oil in organization of petroleum exporting counties (OPEC). Unfortunately, these blessing by nature to Nigerians didn't reflect in total overall welfare of the citizen, made worse, by the collapse of world oil "market as a result of glut in 1981. For example, crude oil prices, which rose rapidly from 120.94 Dollars per barrel in 1979 to $36.95 Dollars in 1980 and $40.00 Dollars in 1981, fell to $ 29.00 in 1983 and low level $14.85 in 1986. (Anyanwu, Oyefusi, Oaikhenan 1997). Exchange receipt which rose form. $ 15.7 billion dollars in 1981, fell to $ 5.2 billion dollars. (Anyanwa etal).  

 

The above does not mean that there have been absolutely no gain from Nigeria's participation in the arena of international trade, the point is that the gains have been normal, not in real terms, because a nation where over 40% of the population live below poverty line, cannot be said to have prospered in real economic terms.

 

This study is going to take a position, whether Nigeria's economic under development can be attributed to international trade or whether her relative economic prosperity, in -terms of growth and development can be attributed to her taking part in the field of international trade. In other words, how effectively has trade contributed to Nigeria's economic growth and development? This is the important question which this study attempts to answer.

 

 

1.1   STATEMENT OF RESEARCH PROBLEM

The importance of international trade in the development process has been of interest to development economist and policy makers alike. Imports and exports are 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. Economic refund is expected to affect imports as part of the strategy to restore external balance. However, unless policy makers know what the major components of import-are and how determine, such a policy decision can be harmful to investment if domestic production relies on imports.

In Nigeria, some people are in favour of protectionist and highly regulated economy and have even criticized the pervious Nigerian government, for signing treaty of the world Trade Organization (WTD), claiming that, Nigeria was not adequately represented in the negotiations and should push for a fairer deal. As regards to this statement, some people, particularly economists pushed for the implementation of the Structural Adjustment Programme (SAP) in 1986 which brought about deregulation of formerly regulated areas of the economy, so that the country could reap the benefit of economic openness.

 

The main thrust of this research is to take an objective view regarding the controversy of the role of international trade, in the progress of a country in terms of economic growth of Nigeria. It has been eluded 'by the dissenting voices in the 21st century, that trade could be negative in terms of acting as a catalyst of economic growth and development, being a retrogressive force, in the journey to Economic independence. But ironically, past experience has proven the potency of trade as a catalyst of economic progress, w.ith regards to growth and development.

 

1.2 PURPOSE OF THE STUDY

International trade has, by and large, been an "engine of growth" for global economy. But there have been large disserting voices in the 21st century, claiming that international trade only perpetuates the under-development of poor countries due to the fact that there are disproportionate shares of gains from trade that accrues to industrialized centuries. This research work focuses on, the following objectives:

.

     i.        To examine the impact of international trade on the economic growth of Nigeria.

   ii.        To determine the extent to which trade policies have impacted on the growth process of Nigerian economy.

  iii.        To assess the trade policies of Nigeria over the years

  iv.        To evaluate the trade and exchange reforms in Nigeria over the years.

    v.        To identify the factor that hinders the international trade progress of Nigeria and make suggestion on how they could be resolved.

 

1.3 RESEARCH QUESTIONS

The research questions, which guide this research work, are as follows:

1.                  Does international trade stimulate economic growth in Nigeria?

2.                 To what extent does the exchange rate impact on the growth process in Nigeria?

3.                  Does external reserve of the country affect it economic growth?

4.                  What are the factors that hinder international trade in Nigeria?

 

1.4 SIGNIFICANCE OF THE STUDY

This study makes use of the econometric procedure in estimating the relationship between international trade components and economic growth in Nigeria. The Ordinary Least Square (OLS) technique is employed in obtaining the numerical estimates of the coefficient in different equations.

 

Ordinary Lease Square (OLS) method is chosen because it possesses some optimal properties: its computational procedure is fairly simple and it is also an essential component of most other estimate techniques. The estimation period covers the last thirty-nine years since the data needed are available for this period. The data for this study are obtained mainly from secondary sources, particularly Central Bank of Nigeria (CBN) publications.

MODEL SPECIFICATION

GDP = ao+a1 Imp + 92 open + Ui

Where GDP = Gross Domestic Product

Imp = Volume of Import

E open = Economic Openness (Expressed as (import + export I gdp)

ao, a1 and a2·- parameters

Ui = Error term

A' PRIORI EXPECTATION

ao>O; a1 <0 and a2 <0 or a2 >0

The constant is expected to be positive because there are number of other factors which determine the gross domestic product aside the ones stated in model. It is a fact in macro economics theory that import is a withdrawal from the economy and so, is expected to impact negatively on economic activities in the country.

 

The effect of economic openness is based on the principle .of comparative advantage by David Ricardo, which advocates specialization and exchange of goods and services among nations. The economic specialization could either be positive or negative depending on the values of export, import and the gross domestic product. If the values of the export and gross domestic product outweigh the value of import, then economic openness would affect economic growth positively and vice-versa.


 


MODEL II

Gdp                     =                 bo + b I Exp + b2 open + ui

Where gdp           =                 gross domestic product

Exp                      =                 volume of export

E open                 =            Economic openness (Expressed as (import +export)

b0, b l and b2     =                 parameters

Ui                         =                 error term

A’ PRIORI EXPECTATION

bO> 0, b l >  and b2 < O or b2 > 0

Again the constant is expected to be positive because there are number of other factors that determine the gross product.

 

In macroeconomic theory, export is regarded as an injection in the economy and so, it is expected to impact positively on the economy. The economy openness could either be positive or negative as explained above.

 

1.5 TEST OF HYPOTHESIS

Ho: That international trade does not contribute to the growth of Nigerian economy.

HI: That international trade contributes to the growth of Nigerian economy.

 

 

 

1.6 SCOPE AND THE DELIMITATION OF THE STUDY'

Literature in most of the study of Nigerian participation in international trade, with regards to policy and strategies has been mostly concentrated on export, which is logical. This study will then pay more attention to various economic policies or programmes or strategies, that has encourage openness of the economy and Nigeria's participation in international trade. This is not to say that the study will not look at export, but Nigeria as a country focuses more on import than export, but in essence this study will be as broad as possible.

 

1.7    DEFINITION OF TERMS

Needs-       National Economic Empowerment and Development Strategy

NNOC-       Nigeria National Oil Cooperation

Import-      Bring in goods into a country from abroad

ECOWAS- Economic Community of West African State

SAP-           Structural Adjustment Programme

Deficit Financing- Expenditure in Excess of Public Revenue madepossible

typical by borrowing

NBS-          Nigeria Bureau of Statistic

CET-           Common External Tariff

EPA-           Economic Partnership Agreements

WTO- World Trade Organization

ITC-            International Trade Centre

POLICY:      A government proposal for maintaining economic growth

and tax revenue

FINANCE- The management of large amount of money

E­XPORT-   A function of international trade whereby goods produced in

        one country is shipped to another country for sale.

COMMERCE­ TRADE- The activity of buying and selling in a large

quantity

TRADE-      The action of buying and selling goods and services

FDI -          Foreign Direct Investment

ORDINARY LEASE SQUARE- In statistic and econometrics,

ordinary lease Square is a method for estimating the

unknown parameters in a linear regression model.

GDP-          Gross Domestic Product

Economic Openness- Used for export share or manufactured export

share of income

Economic Growth-Long term increase in GDP of the country or long

                  term increase in per capital.

Economic Development- The increase in the standard of living in

nation's population with sustained growth from a simple

low economy to a modern high income economy.

Econometrics- Application of mathematical and statistical techniques

                  to economics in the study of problems, the analysis of

                  data and the development and testing of theories and

                  models.

Comparative Advantage -When country specializes in producing and

Exporting only those goods and services which it can

produce more efficiently the effect of trade and finance

on the economic growth and development in Nigeria at

lower opportunity cost.

SME-          Small to medium enterprises

VSE-           Very small enterprises

EU-             Economic Union

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