THE IMPACT OF FOREIGN TRADE ON THE NIGERIAN ECONOMY

THE IMPACT OF FOREIGN TRADE ON THE NIGERIAN ECONOMY

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CHAPTER ONE

                                  INTRODUCTION

1.1 Background of the study

It is wise to assert that no country in the world can sustain itself or survive without exchanging goods and services with other countries of the world. It is also wise to say that the economic growth and development of a country largely depends on how its imports exchange for its exports.

 In view of the above assertions. I have deemed it very necessary to embark on a research work or project on the impact of foreign trade on the Nigeria economy”. This is an attempt and effect to draw the attentions of many Nigerian scholars and professionals to certain silent questions which may be relevant to knowing the impact of foreign trade on the Nigeria economy. International trade is simply the exchange of goods and services between nations of the world. At least two countries should be involved in the activities, that is, the aggregate of activities relating to trading between merchants across borders. Traders engage in economic activities for the purpose of the profit maximization engendered from differentials among international economic environment of nations (Adedeji, 2006).

Theory of comparative advantage make us to understand that countries trade with each other in goods and services because of the concept of differentials in the natural resources, human capital, financial capital and technical capabilities endowment of nations. Some countries are more endowed in these resources than others, even, many countries that are adequately blessed with good resources may not have the ability to manage and channel them to their advantage, hence, denying them the opportunity of achieving the necessary growth, development and good standard of living for their citizenry. The importance of international trade stems from the fact that no country can produce all goods and services which people require for their consumption largely owing to resources differences and constraints. As a result, this trade relationship suggests that economies need to export goods and services in order to generate revenue to finance imported goods and services which cannot be produced domestically. However, Nigerian economy has grossly underperformed relative to its economic endowment and her peer nations. With about 37 solid minerals types and a population estimates of over 160 million people, one of the largest gas and oil reserves in the world, the economic performance of the country is rather weak when compared to the emerging Asian countries such as Thailand, Malaysia, China, India and Indonesia and even Brazil. These countries had by far lagged behind Nigeria or at par with Nigeria in terms of GDP per capital in 1970s, but later they were better able to transform their economies to emerge as major players on the global economic arena. In 1970, for instance, Nigeria had a GDP per capital of US$233.35 and was ranked 88th in the world, when China was ranked 114th with a GDP per capital of US$111.82 (Sanusi 2010). Today, China occupied an enviable position even as the second largest economy after the United State of America, largely owing to her self-esteemed trade position.Economic development is one of the main objectives of every society in the world and economic growth is fundamental to economic development. Export is considered as one of the very important contributors among them. Therefore this study seeks to viewthe impact of foreign trade on the Nigerian economy.

1.2 STATEMENT OF THE PROBLEM

The importance of international trade in the development process has been of interest to development economists and policy makers alike. Imports and exports are a 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 reform is expected to affect imports as part of the strategy to restore balance.In Nigeria, some people are in favor of protectionist and highly regulated economy and have even criticized the previous Nigeria government for signing the treaty of World Trade Organization, claiming that, Nigeria was not adequately represented in the negotiations and that we should push for a fairer deal. The research questions which will guide this work are as follows. Does international trade lead to economic growth? What are the factors that hinder international trade in Nigeria?

1.3 OBJECTIVE OF THE STUDY

The objective of this will be summarized as follows:

i) To investigate the effect of foreign trade in Nigeria economy.

ii) The objective intends to compare the rate at which Nigeria import and exports goods and services.

iii) To find out the impact of certain bilateral and multilateral trade relationship which Nigeria has made with other countries over the years.

iv) To find out how foreign trade has helped Nigeria economy

v) To find out whether Nigeria has invested on industrial projects.

vii) To find out how industrialization should be embraced by Nigeria in other to develop and in order to be able to compete in the international market.

1.4 RESEARCH QUESTIONS

1. How far has our country advanced in the production of goods with export quality?

2. What are the things necessary for the industrial development of Nigeria?

3. How much has Nigeria’s exports competed with her imports?

1.4 RESEARCH HYPOTHESES

H0: Nigeria investments on foreign trade has not helped the Nigerian economy

H1: Nigeria investments on foreign trade has helped the Nigerian economy

H0: there is no significant effect of foreign trade on the Nigeria economy

H2: there is a significant effect of foreign trade on the Nigeria economy

1.5 SIGNIFICANCE OF THE STUDY

In as much as Nigeria has benefited from foreign trade, it has also felt a negative impact of foreign trade. This is because of the fact that, Nigeria is not industrialized, hence Nigeria imports much more than it exports. This has caused and advance balance of payment (BOP)

 This study will help to a large extent to

a.       Boost the production capacity of small and medium scale industries. The resultant effect being the increase in output for increased export.

b.      Initiate large–scale industrial projects

c.       Spell out the need for more allocation of the economy

d.      Increase the capacity utilization of small scale manufacturing industries hence, encouraging demand for foreign goods

e.       Discouraging too much importation, especially, on consumer goods.

1.6 SCOPE AND LIMITATIONS OF THE STUDY

The scope of the study will span 30years, that is, (1980 – 2009). The empirical analysis shall focus on the impact of international trade on the country’s economic growth. The gross domestic product (GDP) shall be used as the indicator for economic growth. In the course of the study, the researcher encounters some constrain which limited the scope of the study;

AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study       

TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities.

1.7 DEFINITION OF TERMS

There are certain terms used in this work, which need to be briefly explained. They are:

B.O.P. Balance of payment this entails the equilibrium of import and export receipts

Boundary: A dividing line that separates countries.

IMPACT: The action of one object coming forcibly into contact with another.

FOREIGN TRADE: Foreign trade is nothing but trade between the different countries of the world. It is also called as International trade, External trade or Inter-Regional trade. It consists of imports, exports and entry point.

Economy:An economy (From Greek οίκος – "household" and νęμoμαι – "manage") is an area of the productiondistribution, or trade, and consumption of goods and services by different agents. Understood in its broadest sense, 'The economy is defined as a social domain that emphasizes the practices, discourses, and material expressions associated with the production, use, and management of resources'.

1.9 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows :Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study


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