The impact of Globalization and Liberalization of Trade in Nigeria

Abstract

Several developing countries in Africa have experienced the effects of globalization. A case in point is Nigeria that had long joined the global bandwagon of free trade and this paper has investigated the impacts of globalization and liberalization of trade in Nigeria. Merits and demerits have been felt in an unequal measure in the wake of unrestricted international trade between countries. The Gross Domestic Product will be used in the study as a measure of economic growth. A classical regression model will also be applied. To gauge the place of Nigeria in the global trade network, a comparative analysis will be applied in the course of study as well. Factors like overreliance on oil export, low production capacity, large imports, and mismanagement of the economy have negatively affected the country’s ability to gain from liberalized trade, and therefore, Nigeria has not fully realized the benefits of globalization and liberalization of trade at the word stage. For Nigeria to benefit fully from globalization; market friendly policies, good governance, transparency, and accountability must be implemented.

Keywords

Development, International Trade, Globalization, Liberalization, Economic Growth

Introduction

Trade liberalization is the opposite of protectionism in the sense that it encourages policies towards open borders for free trade. It involves the removal of barriers to free trade between countries by either doing away with tariffs in totality or reducing the same so that there is free exchange of goods and services. When there is free flow of capital between states the result is a global network involving access to technology, education, media, consumer goods, and healthcare (Amuka, Chukwuma & Agu 2016). Essentially, globalization is a child of trade liberalization in this context, owing to the fact that it is the policies of the latter that informs the former.

Africa has grown since the 1960s. However, that developmental growth has not been very pleasant, considering that Africa was among the regions that exhibited faster growth at the time (Sundaram, Schwank & Arnim 2011). Poor governance, inadequate capital investments, poor economic policies, unfriendly financial market policies, increasing indebtedness, and reliance on monoculture exports are some of the reasons as to why African countries like Nigeria has not taken its rightful place in the global trade. This research will therefore critically investigate the impacts of globalization and trade liberalization in Nigeria.

As one of the developing countries, Nigeria has had a glimpse of both sides of the coin of trade liberalization. It has benefitted from the increased cross-border trade and investments owing to expanding world output albeit in a small way. In 2011, the country made 2.765 billion dollars form the export of 1.186 million metric tons of products not falling within the oil category (Adulagba 2011). Studies have discovered that exports have played a major part in Nigeria’s growth performance (Ogunkola & Oyedije 2001). Additionally, a rise in Foreign Direct Investment, financial transparency and trade openness are attributed to trade liberalization. The idea that globalization was a panacea to the economic problems facing developing countries seems to find a shaky refuge in the studies mentioned above.

Some view globalization as a harmful capitalistic force of progress imposed on developing countries to the benefit of the developed nations. The world as presently organized, is run on capitalistic ideologies of exploitation, where the industrialized ones take advantage of the developing ones. A scenario where some nations, believe their economic ways to be superior, export the same to vulnerable countries with the aim of defining their cultures (Kellner 1989). Such views have interpreted this trade policy as an imposition of the western countries with characteristics like neocolonialism.

However, it is important to point out that even long before globalization became a world trend; there was an imbalance of economic power between developed countries and developing countries. While developed countries had established infrastructure and industries that churned out goods in large quantities lacking only markets, developing countries were majorly reliant on agricultural production and oil exports, which could not balance with the high demand for imports. Ultimately, developed nations found new markets for their mass goods hence increased exports translating to foreign exchange earnings. Developing countries on the other hand, were unprepared and had to begin industrialization with limited capital. Nigeria being a developing country had the advantage of having oil for export and other goods, however, on a balance of import and exports, the advantage diminished.

This research seeks to reveal the nature of setbacks occasioned by adoption of open borders policy as regards trade. To achieve the above, a critical analysis of the individual challenges will be key. Inequality in monoculture export, huge indebtedness, mismanagement of the economy, corruption and inability to woe additional foreign direct investments have been identified to among many other factors that has precluded Nigeria from fully benefiting from globalization (Etim & Rodgers 2016). Further, Nigeria has had undue dependence on crude oil exports, underdevelopment of their domestic financial markets, and low manufacturing of goods for exports have been some of the obstacles in the path to full realization of globalization growth potentials. It is also important to note that these challenges facing Nigeria are not unique to the country.

To solve the challenges posed above, the research will address possible recommendations. For instance, resource mobilization is one way of spearheading economic growth. Therefore, I will proceed to perform an examination of the present strengths, weaknesses, and potential areas to find sustainable solutions to the issue at hand. Nigeria should channel more investment capital through among others private partnership agreements to boost and expand the manufacturing industry for export goods, employ transparency, and accountability in the running of the economy. Moreover, it should introduce market friendly policies, increase its ability to attract foreign investments, reduce the existing debt, expand her developmental cooperation with other countries and implementation of systems that buttress democracy and market systems.

The research is particularly significant to me since I really want to establish the reasons behind below par realization of the benefits of globalization. My interest in this research was also drawn by the desire to affirm whether Nigeria's slow economic growth is because of marginalization, weak technological capabilities, and overdependence on its primary commodities; as concluded by many studies done before. The recommendation put forward in this research, if implemented, will provide practical solutions to the longstanding problems earlier identified.

For the successful completion of this research, I will have to remain disciplined. In so doing, I will strive carefully plan for the study, make proper use of limited time, maintain a progressive approach, and remain motivated throughout. Moreover, I will have to employ good analytical skills and constructively use the available materials in accomplishing objectives of the research.

Background knowledge

Generally, globalization entails the opening of borders by individual nations with an aim of fostering free exchange of goods and services between nations. Barriers to free trade like tariffs are eliminated or reduced. This is to encourage the international movement of goods and services. Eventually, industrialized nations will end up exporting more into countries still in the process of establishing industrial manufacturing. An imbalance of trade will consequently arise given that such countries will be unable to match the amount of money used to purchase the mass imports. In the end, an economical challenge is born where there is slow growth and or increasing indebtedness.

Literature review

Barry (2010: 4) defines globalization thus, “globalization is a term that has been used to describe international interaction and interdependency.” On a similar note, Sundaram and Arnim (2008) elucidated globalization as an evolution that systematically restructures interactive phases among states by eliminating barriers in areas of commerce, communication, and culture as well as other endeavor fields. According to Ncube (2007), it champions for the elimination of trade barriers, unhindered transfer of goods and international capital that transcends borders. The author adds that evolution of information technology plays a big role in igniting globalization.

Mkandawire (2003) contends that globalization extends to even the oceans ad airspace. Several studies done on globalization have had global economy employed as analysis units. However, Sundaram and Arnim (2008) note that although globalization has a positive impact on the lives of citizens of involved countries, it also has the downside. To buttress this, Keen and Mansour (2010) see globalization simply as a tool of segregation. As to whether globalization has benefited or been detrimental to Nigeria, there is no definite answer from the various studies (Matthew & Adegboye, 2013; cited in Matthew & Adegboye, 2013).

Separately, trade liberalization has been taken to be the implementation of open borders policy for seamless international flow of goods between states (Mansour & Keen, 2009). Free trade can be promoted by allowing the movement of goods across borders with minimal or no tariffs. According to Dollar and Kraay (2001), anti-protectionism policies result in reduction of prices through elimination of tariffs and increased competition. Therefore, increased competition means cheaper and varieties of goods are available for consumption (Dollar & Kraay, 2001). Nevertheless, Ogunwa (2012) points out that policies in support of unfettered flow of goods across borders has increased competition that, unfortunately, a country like Nigeria cannot match owing to the underdeveloped status of her industries.

Aminu, Ahmad & Salihu (2013) are of the opinion that the Nigerian economic condition has worsened after joining the World Trade Organization (WTO) in 1983. It is their contention that the globalization policies are better placed with export lead countries of the world and that preferably exports should be mainly equipment machineries in information and technology for the advancement a modern set up. Pointing that Nigeria is largely an import-led country and foreign developed nations stand to gain from the imbalance of trade while the country will continue losing, being at a disadvantage.

Yartey and Adjasi (2007) in their paper, largely supports the contentions of Ogunwa above. They consider stiff competition from established producers as a major challenge to having a trade balance in favour of developing countries like Nigeria. Further, Yartey and Adjasi (2007) hold the argument that trade liberalization works towards reducing support for local industries and pose environmental risk where there are no policies in place.

Chike and Eguavoen (2007) recommend that Nigeria should strengthen her authority as a bulwark against the assumption that unrestricted free market access is compulsory for development to be realized. They insist that Nigeria should not blindly domesticate globalization and instead maintain certain reservation for there to be prosperity. In fact, they tend to prefer the East Asian `tigers’ way of adopting international policies with careful analysis of what to incorporate and drop. As extensively shown above, the works of the scholars stated has a great correlation to the nature of my research in consideration of my research area.

Methodology

I will apply the use of panel data on globalization effects ranging at least two decades in Nigeria. Subsequently, I will use the classical regression model in my research while using Gross Domestic Product and Foreign Direct Investment to reach certain conclusions regarding the impacts of the topic at hand.as it is an essential variable, based on the study of economics. FDI will be vital in capturing the outside capital source impacts on the economic growth of developing economies. The balance of import and exports between Nigeria and other countries will also be considered in the study (Sundaram, Schwank & Arnim 2011).

In this study, I have considered the use of current theories, latest approaches to reach the assumed conclusion. To accomplish this, I will test my hypothesis using the deductive research approach but analyzing the quantitative data on the study economy in my possession to make recommendation. Additionally, I will come up with innovative approaches to the problem and align the same to prevailing theories put forward by scholars in the field.

A good design is key for one to successfully undertake a study. Therefore, I will have my research divided into two parts. The first part will cover the research question, feasibility, qualitative research, and assorted methods. In second pat, I will perform a quantitative analysis to attain measurements and outcomes that will lead me to get statistical importance. In this section I will provide the objective of the project as well as the explanation of any issues I may find valuable. Furthermore, in pursuit of successful study, I will seek information from key persons such as my mentors and as well review the available literature for the purpose of inspiration, creativity, gaps, and limitations among others. Other important aspects in realizing the best in this project entails setting a precise timeline, guaranteed access to all the subjects that I will require, being oblivious of geographical barriers and ethical concerns, as well as strike a good rapport with all participants.

Project stages

The study will be undertaken in carefully planned phases. Phase one will be solely for examination of the existing and relevant works of scholars. The overall effect is that I will be delving into an area of study that I have enough background information. Phase two will describe the objectives and subsequently test the hypotheses. Next, I will now narrow down on the single areas of concern in Nigeria. In assessing feasibility of the hypotheses, I will confirm that the paper will sufficiently test the hypothesis using available resources. The last phase involves choosing data treatment method, measurement approach, selecting the unit of measurement and putting together a framework of the statistical analysis used. Thereafter, I shall undertake collection of data and scrutiny of the same. Afterwards, I will put together a whole report.in the first year of my research I shall have addressed the research problem and obtain a solution to globalization challenge in Nigeria. It is during this time that shall have identified my supervisor and undertaken the review of my literature supporting this research.

Problems/challenges

I foresee certain difficulties in the course of my research. For one, time constraint will be an issue considering that a huge portion of my time will be spent in collection and analysis of data from various sources. It will be a challenge accessing published data from government agencies for purposes of my research paper, since obtaining information from the government is usually a winding and tedious process. National archives may probably unable to provide some of the long-standing and latest books as I may need from time to time during the research.

References

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