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THE IMPACT
OF TRADE LIBERLISATION ON EMPLOYMENT GROWTH IN NIGERIA
CHAPTER ONE
INTRODUCTION
BACKGROUND
TO THE STUDY
The issue of
employment is very germane to any economy; this is why one of the mainmacroeconomic
objectives of any country is to attain full employment. The issue of
employmentis paramount to Africa and Nigeria in particular, where high-level
poverty is obvious with risingunemployment rates. However, in order to combat
the problem of poverty, Oni (2006) arguedthat reducing the level of
unemployment will increase the income level in the economy andthereby reduce
the level of poverty. To increase the level of employment, some scholars
haveargued that the flow of goods and services (trade flows) could propel
employment generation,especially in developing countries.
According to
Pieper(2006), growth inemployment has a feedback on economic growth, such that
an increase in labour incomes wouldexpand domestic demand, which in turn would
lead to sustainable GDP growth and reducingrisks of excessive reliance on
uncertain foreign markets. Given this fact, trade can absorbNigeria’s surplus
labour and this can go long way in alleviating poverty for the majority of
thepoor Nigerians.
Economists
have long been interested in factors which cause different countries to grow at
different rates and achieve different levels of wealth. One of such factors is
foreign trade. Nigeria is basically an open economy with international
transactions constituting a significant proportion of her aggregate output. To
a large extent, Nigeria’s economic development depends on the prospects of her
import and export trade with other nations. Foreign trade provides both foreign
exchange earnings and market stimulus for accelerated economic growth (Obadan,
2004). Nigeria’s relatively large domestic market can support growth but alone
cannot deliver sustained growth at the rates needed to make a visible impact on
unemployment and poverty reduction. Hence Nigeria has continued to rely on
foreign market as well (World Bank, 2002).
Many
economists generally agree that openness to international trade accelerate
development. The more rapid growth may be a transition effect rather than a
shift to a different steady states growth rates, clearly, the tradition takes a
couple of decades or more so, that is, it is reasonable to speak of foreign
trade openness accelerating growth rather than merely leading to a sudden
onetime adjustment in net income (Dollar and Kraay, 2001).
Nigeria is
characterized with a ‘dualistic’ labour market in which the minority of
workershave regular formal sector jobs, while majority works in the informal
sector, with a large pool ofsurplus labour. This is seen from its rapidly
increasing labour force.The impact of trade liberalisation on employment growth
in Nigerian economy; considering the vision of the country, the welfare of its
people and its economic position in the world today, tend to be a special area
of interest for the academic world and for policy makers.
1.2 STATEMENT OF THE RESEARCH PROBLEM
In spite of
the country’s large pool of surplus labour, rapidly growing labourforce and
increasing employment, the share of employed workers in total labour force has
beendeclining since 1980, coupled with this, in the last two decade, the trend
has been below 70%,which is an indication of high unemployment as more than 30%
of its active population areunemployed.
This trend
is not surprising as Nigeria ishighly dependent on imports for most of its raw
materials inputs (CBN, 2007) and theemployment effect of these imports might be
positive if a significant portion of imports serves asinputs for labour
intensive industries. However, this trend has given rise to debates in
developingcountries where concerns have been expressed over the loss of jobs
due to import competition(Ghose 2003) and deindustrialisation as result of
increased imports
However,
government has tried to reverse this trend through the implementation
ofpolicies to diversify the country’s export base away from oil so as to
promote a stronger exportperformance. Such export policy includes export
promotion strategies in which incentives weregiven for the promotion of non-oil
exports particularly agriculture and labour intensivemanufactures. As noted by
Carneiro and Arbache (2003) and Rama (2003), export promotionimproves
employment level in countries embracing the strategies. Therefore, there had
been anongoing argument between government and public, while the former opined
that her exportpromotion policies have increased the level of employment,
majority of the people believe thatunemployment is on the rise; it is against
this backdrop that we consider it interesting todetermine whether the flow of
imports and exports have brought any significant effects on employment growth
inNigeria.
1.3 OBJECTIVES OF THE STUDY
The main
objective of this research is to empirically examine the impact of trade
liberalisation on employment growth in Nigeria between the year 1981 to 2013.
Specifically,
the study also seeks:
To examine
the trend in trade liberalisation vis a vis employment growth in Nigeria.
To examine
the extent at which trade liberalisation can generate employment.
Proffering
appropriate framework based on the policy recommendations made.
1.4 RESEARCH QUESTION
This study
aims at answering the following research questions:
i Does a long or short run relationship or
both exist between trade flows andemployment?
ii. To what
extent is Nigeria’s total employment growth rate attributed to domesticfactors
and external factors?
iii. What
are the factors that hinder trade liberalisation?
1.5 RESEARCH HYPOTHESIS
The
following hypothesis will be tested in the course of this study:
H0: Trade liberalisation has no significant
impact on employment growth in Nigeria.
H1 Trade liberalisation has significant impact
on employment growth in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
The findings
of this study will provide an insight as to whether trade liberalisation has
any significant impact on Nigeria’s employment growth. Hence, policy makers
will be able to formulate an articulate and comprehensive policy with respect
to trade liberalisation management in Nigeria.
This research will also provide an objective view to the relevance of
trade liberalisation on employment growth in Nigeria. The findings of this
research will also serve as a useful reference material for further research on
the impact of trade liberalisation on employment growth in Nigerian economy.
1.7 RESEARCH METHODOLOGY
The analysis
that will be made in this study shall be based on macroeconomic data in Nigeria
economy. Due to the linearity nature of the model formulation, Ordinary Least
Square (OLS) estimation method would be employed in obtaining the numerical
estimates of the coefficients in the model using Eviews.
Two multiple
regression models shall be used in the estimation. The model shall seek to
investigate the effect of trade liberalisation on employment growth in Nigeria.
This is a follow up on the objectives of study stated earlier.
1.8 SCOPE OF THE STUDY
The economy
is a large component with lot of diverse and sometimes complex parts; this
research work will only look at a particular part of the economy (Trade). This
work cannot cover all the facets that make up the Trade sector, but will look
at trade liberalisation has been used by the government for the stabilization,
and attaining economic development.
The
empirical analysis and estimation covers the period between 1981 and 2013. This
restriction is unavoidable because of the non-availability of some data.
The data for
this study would be obtained mainly from secondary sources; particularly from
Central Bank of Nigeria (CBN) publications such as the CBN Statistical
Bulletin, CBN Annual Reports and Statements of Accounts, and National Bureau of
Statistics publications.
1.9 LIMITATIONS OF THE STUDY
Finance is
one of the elements that assist a good research. Financial constraint created
difficulties in the process of this research work; however, it did not hinder
the research.
The main
limitation of this study is time constraint. The time allotted for the
completion of this research is not adequate based on recent and contemporary
happening with respect to the impact of trade liberalisation on employment
growth inNigerian economy.
ORGANISATION
OF THE STUDY
This study
shall be divided into five chapters. The first chapter provides the background
of the subject matter justifying the need for the study. Chapter two presents
related literature concerning trade liberalisation on employment growth in
Nigeria. The research methodology, which includes the theoretical framework,
sources of data, model formulation, estimation techniques etc, are stated in
chapter three while data presentation, analysis and interpretation of regression result were made in chapter
four. Concluding comments in chapter five reflects on the summary, conclusion,
recommendations and suggestion for further studies based on the findings of the
study.
1.11
DEFINITION OF TERMS
The
following words are operationally defined as they would be used in this
research study.
Trade
liberalisation: The removal or reduction of restrictions or barriers on the
free exchange of goods between nations. This includes the removal or reduction
of both tariff (duties and surcharges) and non-tariff obstacles (like licensing
rules, quotas and other requirements).
Foreign
Trade: This is a trade between two or more countries. It is also referred to as
international trade or external trade. It is a trade outside the national
boundaries of countries. Foreign trade could be bilateral trade, which is trade
between two countries or multilateral trade, which is trade between more than
two countries.
Employment:
This is astate of having a legitimate paid work. This is the opposite of
unemployment.
Economic
Growth: This refers to the increased over time of an economy’s capacity to
produce those goods and services needed to improve the well-being of the
citizens in increasing number and diversity. It is the study of the process by
which productive capacity of the economy is increased over time to bring about
rising level in national income.
Economic
Development: This is a multi-dimensional process involving the provision of
basic needs, acceleration of economic growth, reduction of inequality and
unemployment, eradication of poverty as well as changes in attitude,
constitution and structure in the economy.
REFERENCES
Carneiro,
F.G. and Arbache, J.S. (2003) ‘The Impacts of Trade on
the
Brazilian Labour Market: A CGEModel Approach’, World Development 31(9):
1581-95.
Central Bank
of Nigeria (2007); Annual Report and Statement of
Accounts,
December, Abuja.
Dollar D.
and A. Kraay (2001), Growth is Good for the poor, Washington D.C. World Bank
policy research working papers No. 2587.
John Black
(2002). Oxford Dictionary of Economics. Oxford University Press Inc. New York.
Obadan, M.
(2004).“Prospect for diversification in Nigeria export Trade” inAnnual
conference of the Nigeria Economic society (NES).Heinemannpress, Ibadan. Pg. 35
– 55, unpublished Empass, press
Oni, B.
(2006) ‘Employment Generation: Theoretical and Empirical Issues’, paper
presented at the 2006 Annual Conference of the Nigerian Economic Society.
Calabar, (August).
Pieper, U.
(1998) ‘Openness and Structural Dynamics of Productivity and Employment in
Developing Countries: A Case of De-industrialization?’ ILO Employment and
Training Papers 14, Geneva: International Labour Organisation.
Rama, M.
(2003) ‘Globalization and Workers in Developing Countries”, World Bank Policy
Research
Working
Paper No. 2958. Washington, DC: World Bank.World Bank (2002). World Development
Indicators, Washington D.C., The World Bank.
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