Image Credit: Gifted Hands
1.1 BACKGROUND TO THE STUDY
The issue of employment is very germane to any economy; this is why one of the main macroeconomic objectives of any country is to attain full employment. The issue of employment is paramount to Africa and Nigeria in particular, where high-level poverty is obvious with rising unemployment rates. However, in order to combat the problem of poverty, Oni (2006) argued that reducing the level of unemployment will increase the income level in the economy and thereby reduce the level of poverty. To increase the level of employment, some scholars have argued that the flow of goods and services
(trade flows) could propel employment generation, especially in developing countries. According to Pieper (2006), growth in employment has a feedback on economic growth, such that an increase in labour income would expand domestic demand, which in turn would lead to sustainable GDP growth and reducing risks of excessive reliance on uncertain foreign markets. Given this fact, trade can absorb Nigeria’s surplus labour and this can go long way in alleviating poverty for the majority of the poor 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 growth rate, 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 minorities of workers have regular formal sector jobs, while majority works in the informal sector, with a large pool of surplus labour. This is seen from its rapidly increasing labour force. The impact of trade liberalization on economic growth in Nigeria; 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. The unanimous agreement on the beneficial effects on growth and poverty reduction of trade liberalization goes back to the emergence of the Washington Consensus in the early 1980s. The consensus emerged in response to the economic crisis affecting most developing countries at that time, triggered by the debt crisis.
Nonetheless, economic growth is generally seen as being dependent on openness on trade. The existing literature supports the axiom that openness is directly correlated to greater economic growth with the main operational implication being that government should dismantle the barriers to trade. There are some good arguments suggesting that trade liberalization may improve resource allocation in the short term or raise growth rate permanently (and thus be beneficial to the poor). The key to sustained poverty alleviation is economic growth, as was widely accepted by economists and development practitioners (Fields, 1989; Ravallion, 1995; Bruno; Ravallion and Square 1998). These early studies were based on rather small samples, but recent work has extended the sample and reached exactly the same conclusions, although at the expense of great controversy. Most controversial has been the study by Dollar and Kraay (2002), which examines the relationship between growth and poverty both in levels across countries and in changes through time (national growth rates). They observed that although, growth can be un-equalizing, it has to be very strongly so if it is to decrease absolute poverty. This appears not to be the case either in general or for growth associated with free trade.