THE IMPACT OF TRADE LIBERALISATION ON EMPLOMENT GROWTH IN NIGERIA
This research work is on the impact of trade liberalisation on employment growth in Nigeria. The main objective of this study is to empirically examine the impact trade liberalisation on employment growth in Nigeria. This research work made use of secondary data which were obtained from the Central bank of Nigeria Statistical Bulletin (2013). The data were collected for a period of thirty three years (i.e. 1981-2013). The Ordinary Least Square Regression Technique was employed in the analysis of the data. Based on the empirical analysis, it is concluded that trade liberalisation has significant impact on the employment growth of Nigeria. The question for Nigeria is not whether to trade but in what to trade and the terms on which it trades with itself and the rest of the world. Regional integration may bring some benefits if wisely designed, but more important is to get the right growth fundamentals of high levels investment of physical and human capital as to raise output and generate more employment opportunities.Based on the conclusions made it is recommended that the government should encourage the informal sector by providing the needed financial and infrastructural facilities to facilitate their smooth operations, also government should employ sound macroeconomic policies that would stabilize prices, exchange rate, subsidize interest rates, hence bring about increase in participation (employment creation) in international thereby gains from trade in return vis a vis increased national income
1.1 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 Arbache (2010) and Rama (2011), globalisation increases 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?
- 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.
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.