EVALUATING THE IMPACT OF INTERNATIONAL TRADE FLOWS ON INDUSTRIAL SECTOR EMPLOYMENT IN NIGERIA

EVALUATING THE IMPACT OF INTERNATIONAL TRADE FLOWS ON INDUSTRIAL SECTOR EMPLOYMENT IN NIGERIA

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CHAPTER ONE

INTRODUCTION

1.1      Background of the Study

It is common knowledge that trade have played some prominent role in economic integration and development of many economies over in recent decades. Such role in integration of economies is generally known as globalization which has been manifested as among other things, increased trade, immigration, and investment. Globalization in the words of Griswold, (2000) signifies an increase in interaction across borders in areas such as economic co-operation (international trade and investment), technology, personal contacts and political engagement. Thus, of all the aspects of globalization however, increase in cross-border movements of final goods and services and cross-border flow of production inputs, namely labour, capital, and technology are the two aspects that have significant impact on labour markets. For Nigeria, the trade aspect of globalization has been fueled, partly by regional and multilateral trade agreements gear towards trade liberalization.

Trade liberalization is mostly intended to promote exports and productivity by exploiting comparative advantages that can be gained through exposure to foreign competition, enhanced technical development and access to economies of scale. It is often argued that alignment of domestic and foreign prices can generate employment especially on the industrial sector by increasing importing capacity, reducing forced idleness of resources, eliminating allocative and abolishing monopoly profits and allowing optimum resource allocation in the economy.

Linking trade especially the cross-border trade to employment can be tress back to the earlier debate on the role of trade in labour market outcomes by well known Heckscher-Ohlin theorem. Where they assert that there is always full employment such that international trade will only lead to a reallocation of labour across sectors of the economy. Given this assertion, the issues of trade related unemployment does not arise as trade does not affect aggregate level of employment. However, Nigeria as in other developing countries is characterized by the Arthus Lewis type of surplus labour, where trade is theorized to have some implications for the country’s employment. In view of this,


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Kareem, (2010) and Umaru, (2013) argued that trade liberalization have uncertain implications for employment creation in developing nations.

In Nigeria two distinct trade regimes have been experimented, namely, restricted trade and the open that is liberalized trade regimes. According to Kareem (2010), the philosophy of controlled trade regime embodied a regime of regulation that has both direct and indirect instruments of control in the conduct of foreign trade and payments. This is to achieve efficiency in the face of market failure (Jenkins & Sen 2006), as the condition for competitive equilibrium is not satisfied. The proponents of the open regime often argue that openness enhance the growth prospect of the participating countries (Krugman, 1986). In an alternative to restricting trade, Nigeria, government has tried to reverse this trend through the implementation of policies to diversify the country’s export base away from oil so as to promote a stronger export performance. Such export policy includes export promotion strategies in which incentives were given for the promotion of non-oil exports particularly agriculture and labour intensive manufactures. This is believed to promotion export and improves employment level in countries embracing the strategies. But many analysts have as well argued that unemployment has not been reduced in many countries that practiced export promotion policies in a hugely opened economy (Rama, 2003 and Fatima, 2009).

Again, in recent years, the negative pressure which the volatile capital market of the advanced capitalist economies exerts on the developing countries has given rise to counter opinion which supports the negative aspects of openness and questions are being asked as to whether developing countries actually share in its benefits. Thus, it becomes an issue of great relevance to investigate whether increased international trade in Nigeria has had any significant impact on employment growth in Nigeria.

1.2      Statement of the Problem

There is conflicting evidence in literature on the relationship between international trade flows and employment growth. Some have argued that rising imports may generate a decline in employment if it leads to a decrease in the demand for the country’s domestic output (Olomola, 1995). Others opined that employment will fall if rising import rate


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eliminates low productivity firms through import competition. However, in a real sense, one may expect a positive employment effect if a significant portion of the imports constitute labour-intensive inputs. Conversely, it is also expected that countries which have rising export rate might witness a rapid increase in employment, which implies that there may be a positive correlation between employment and export rate.

Nigeria economy that depends on oil for more than 80% of her revenue might be affected by the resource curse otherwise known as ‘Dutch disease’ phenomenon (OECD, 1992), which can make the relationship between trade flows and employment to be negative. Intensive exportation of her crude oil resources might make the real exchange to appreciate strongly, which in turn might make exports to be expensive, unprofitable and therefore globally uncompetitive (Hausman & Rigobon, 2002). This might lead to decline in traditional exports which consequently may lead to declining industrial sector employment.

Tracing the relationship of international trade flow and employment in Nigeria, available statistics have shown that from 1981 to 1985, average growth rate of unemployment was as high as 5.3% while the labour force is given as 28.6 million, out of an active population aged 15 to 64 of about 40 million which amounts to an average participation rate of 68.6% (Ogunrinola, 1991). The rate of unemployment was 12% in 2005; it rose to 19.7% in 2009, while the rate of underemployment hovered around 19% and 25% in 2005 (Adebayo and Ogunrinola (2006). Among the youths in the 15-24 age cohorts, the rate of unemployment is over 40% (National Bureau of Statistics; NBS, 2010).

Source: World Bank World Development Indicator, 2012


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The share of employment in total labour force is given as 71.7%, which indicates that about 28.3% of the active populations are unemployed in this period. These are indication of employment problem. In 1986 to 1990, there was a rise in both labour force and active population to an average value of 32.4 million and 45.5 million respectively. In addition, labour force participation rate in this period was as high as that of the period between 1981 and 1985 recording an average value of 68.3% compared to 68.6% in 1981 to 1985 (NBS, 2010). However, employment growth rate did not commensurate with both the increase in labour force and active population as average employment growth rate fell from 2.2% in 1981 to 1985 to 1.3% in 1986 to 1990 (World Trade Organization, WTO, 2006).

Source: Computed by the author, from Central Bank of Nigeria Statistical Bulletin, 2012.

Also, the share of employment in labour force rate fell from 71.7% in 1981 to 1985 to 66.9% in 1986 to 1990 despite the rise in both labour force and active population in this period. All of these are indicative that the economy could not absorb the high surplus labour recorded in the period (see Fig.1and 2 for a quick snap at the labour market characteristics and trade expansion – growth statistics). As a matter of fact, Nigeria is characterized with a ‘dualistic’ labour market in which the minority of workers has regular formal sector jobs, while majority works in the informal sector, with a large pool of surplus labour. Labour force increased from 25.7 million persons in 1980 to 33.9 million persons in 1990 and further increased to 45 million and 52.7 million persons in 2000 and 2006 respectively. In addition to this, statistical evidences from the government show that the absolute number of total employment in the country has been steadily increasing since 1980. For instance, total employment increased steadily from 18.6 million in 1980 to 22.1



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