Trade Liberalization and the Performance of the Manufacturing Subsector in Nigeria
A Nonlinear Approach
DOI:
https://doi.org/10.20525/ijfbs.v13i3.3645Keywords:
Trade Policy; Economic Growth; Manufacturing sub-sector; ThresholdAbstract
Trade liberalization is a widely accepted policy for fostering economic growth, particularly in developing countries. Advocates argue that open economies, through increased competition, specialization, and access to global markets, outperform closed economies. However, the short-term effects on developing economies like Nigeria remain debated, especially within the manufacturing sector. Nigeria's trade policy has fluctuated between protectionism and openness, significantly influencing its manufacturing performance. Critics, drawing from dependency theory, argue that liberalization exposes weaker economies to exploitation by stronger nations, leading to trade imbalances and inhibiting industrial growth. This study investigates the nonlinear effects of trade liberalization on Nigeria’s manufacturing sector, addressing a gap in the literature by employing a quadratic approach to determine threshold effects. By incorporating a quadratic form of the trade variable, the study tests the hypothesis that trade liberalization initially boosts the manufacturing sector but results in diminishing returns as openness intensifies. The research is framed within the Laffer Curve of Trade, suggesting that beyond a certain threshold, excessive openness may harm the manufacturing sector. The AutoRegressive Distributed Lag (ARDL) model is used to assess both short-run and long-run effects, with findings indicating a convex relationship between trade liberalization and manufacturing output, highlighting the critical importance of identifying optimal policy thresholds to maximize industrial growth.
Downloads
References
Adel, U., (2022). Effect of trade liberalization, investment, expenditure, and oil price on the economic growth of Cote d’Ivoire. American Economic Review, 86(5), 2-16.
Adeyemo, M.A., & Ogwu, R.O., (2023). Trade liberalization, gender inequality and economic growth in Nigeria. Journal of development economics, 5(3), 35-45.
Agu, M.A., Udoka, P.T., & Okoroafor, R.O., (2022). Trade liberalization and economic growth in Nigeria. Journal of development economics, 5(6), 15-30.
Atseye, P., Baldwin, M.N., & Tagloni, F., (2022). Trade openness and economic growth in Nigeria. European Economic Journal, 53(2), 59-67.
Bojanic, A. N. (2012). The impact of financial development and trade on the economic growth of Bolivia. Journal of Applied Economics, 15(1), 51-70. https://doi.org/10.1016/S1514-0326(12)60003-8
Briggs, I. N., (2017). Nigeria: Mainstreaming trade policy into national development strategies. Economic Journal, 10 (45), 157 168.
Denwi, J., Ikue, N. J., Onodjaefe, J., & Simeon, M. (2022). Trade liberalization policy and economic growth in Africa: A threshold analysis. International Journal of Research in Business and Social Science (2147-4478), 11(7), 178-188. https://doi.org/10.20525/ijrbs.v11i7.2088.
Dragush, D. M., Dornbusch, R., Roy, J., & Ruffin, S.A., (2023). Relationship between trade liberalization, foreign trade, and economic growth in Albania. Weltwirtschaftliches Archly, 131(3), 425-445.
Duru, P.O., Ziam. T.I., & Samuel, K.U., (2020). Trade liberalization and economic growth in Nigeria. Economic Journal, 108 (450), 1547-1568.
Elijah, R., & Musa, L.I., (2019). The case for trade liberalization in developing countries. Journal of Economic Perspectives, 6(1), 69 – 85.
Emerenini, J.E., & Ohadinma, D.K., (2018). Trade liberalization: Investigation of Nigeria trade policy. International Journal of Academic Research in Economics and Management Sciences, 4(5), 26-36.
Falvey, R., Foster, N., & Greenaway, D. (2012). Trade liberalization, economic crises, and growth. World Development, 40(11), 2177-2193. https://doi.org/10.1016/j.worlddev.2012.03.020.
Ikue, N. J., Amabuike, I. L., Ajaba, J. A., Sodipo, J. A., & Enegesi, L. B. (2020). Financial system, trade concentration and economic growth in West African Monetary Zon (WAMZ). International Journal of Research in Business and Social Science (2147-4478), 9(4), 426-436. https://doi.org/10.20525/ijrbs.v9i4.770
Ikue, N. J., Medee, P. N., Denwi, J. O., & Sodipo, J. A. (2021). Macroeconomic deficits and public debt sustainability in Nigeria. Journal of Economics and Finance, 4(6), 39-48.
Jouini, J. (2015). Linkage between international trade and economic growth in GCC countries: Empirical evidence from PMG estimation approach. The journal of international trade & economic development, 24(3), 341-372. https://doi.org/10.1080/09638199.2014.904394
Laffer, A. B. (1981). Government Exactions and Revenue Deficiencies. The Cato Journal. 1, 1-21.
Lateef, A.I., Nwanji, T.I., Asaleye, A., & Ahmed, V., (2022). Economic growth, financial development and trade openness in Nigeria: An application of the ARDL bound testing approach. Cogent Economics and Finance, 4(2), 1–15.
Lioness, E., (2015). Trade liberalization and economic growth in Nigeria. ?Ph.D. dissertation, University of Calabar, Calabar ?.
Mohammad, R. E., (2023). Trade liberalization and its development impact in Nigeria. International Journal of Finance and Investment, 2(6),42-45.
Muhammad, L.N., & Ugur, B.W., (2023). Human capital, trade liberalization, and economic growth in Pakistan's economy. Economics and Finance Review, 1(5), 57 – 65.
Muhammad, N. K., Okafor, P.D., & Itodo, H. A., (2022). Trade liberalization and its development impact in Nigeria. International Journal of Finance and Investment, 5(6), 22-40.
Nasreen, S., & Anwar, S. (2014). Causal relationship between trade openness, economic growth and energy consumption: A panel data analysis of Asian countries. Energy policy, 69, 82-91 https://doi.org/10.1016/j.enpol.2014.02.009
Neaime, S. (2015). Twin deficits and the sustainability of public debt and exchange rate policies in Lebanon. Research in International Business and Finance, 33, 127-143. https://doi.org/10.1016/j.ribaf.2014.09.004
Nduka, E.K., (2016). Openness and economic growth in Nigeria. Journal of Education and Practice, (4)1, 13-20.
Neoh, S. F., & Lai, T. S. (2021). The impact of trade openness on manufacturing sector performance: evidence from Malaysia. Journal of Economics and Sustainability, 3(1), 11-11. https://doi.org/10.32890/jes2021.3.1.2
Onakoya, A. B., & Effeni, L. O. (2020). Liberalization of Foreign Trade and Manufacturing Output in Nigeria. LWATI: A Journal of Contemporary Research, 17(2), 275-297.
Olaniyi, A.K., (2015) Industrial development and growth in Nigeria: Lessons and challenges. learning to complete, Working Paper No. 8.
Oludayo, N. K., & Samson, H. A., (2020). Trade liberalization and its development impact in Nigeria. International Journal of Finance and Investment, 5(6), 22-40.
Pesaran, M. H., Shin, Y., & Smith, R. P. (1999). Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American statistical Association, 94(446), 621-634
Pesaran, M. H., Shin, Y., & Smith, R. P., (1999). Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American statistical Association, 94(446), 621-634
Pesaran, M., Smith, R., (1995). Estimation of long relationships from dynamic heterogenous panels. Journal of economics. 68, 79 114 https://doi.org/10.1016/0304-4076(94)01644-F.
Prebish. F.A., (1970). International patenting and technology Diffusion. NBER Working Paper
Sunde, T., Tafirenyika, B., & Adeyanju, A. (2023). Testing the impact of exports, imports, and trade openness on economic growth in Namibia: assessment Using the ARDL cointegration method. Economies, 11(3), 86. https://doi.org/10.3390/economies11030086
Ugagu A., (2016). Impact of trade liberalization on Nigeria’s agricultural output: 1986-2015. ?Master’s thesis, Ahmadu Bello University Zaria ?.
Ula?an, B. (2015). Trade openness and economic growth: panel evidence. Applied Economics Letters, 22(2), 163-167. https://doi.org/10.1080/13504851.2014.931914.
Uche, R. E., & Olayinka, S.O., (2022). Trade liberalization and its development impact in Nigeria. International Journal of Finance and Investment, 2(8),42-45.
Were, M. (2015). Differential Effect of Trade on Economic Growth and Investment: A Cross country Empirical Investigation. Journal of African Trade 2, 71-85, http://dx.doi.org/10.1016/j.joat.2015.08.002.
Yusuf, S. A., (2015). An analysis of the effects of liberalized trade and exchange rate policies. on agriculture in Nigeria. ? Ph.D. Thesis, University of Ibadan ?.
Zahonogo, P. (2016). Trade and economic growth in developing countries: Evidence from sub Saharan Africa. Journal of Africa Trade. 5(12), 12-28, http://dx.doi.org/10.1016/j.joat.2017.02.001.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Collins Obieze Onuosa, Uyu Eyo Ita, Nenubari John Ikue, Ibimna Otoru Ikemenjima, Bethel Njoku
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors contributing to IJFBS agree to publish their articles under the Creative Commons Attribution- 4.0 license, allowing third parties to share their work (copy, distribute, transmit) and to adapt it, under the condition that the authors are given credit, that the work is not used for commercial purposes, and that in the event of reuse or distribution, the terms of this license are made clear. Authors retain copyright of their work, with first publication rights granted to IJFBS. However, authors are required to transfer copyrights associated with commercial use to the Publisher. The authors agree to the terms of this Copyright Notice, which will apply to this submission if and when it is published by this journal
Submission of an article implies that the work described has not been published previously( except in the form of an abstract or as part of a published lecture or academic thesis), that it is not under consideration for publication elsewhere, that its publication is approved by all authors and tacitly or explicitly by the responsible authorities where the work was carried out, and that, if accepted, it will not be published elsewhere in the same form, in English or in any other languages, without the written consent of the Publisher. The Editors reserve the right to edit or otherwise alter all contributions, but authors will receive proofs for approval before publication.
