IMPACT OF EXTERNAL TRADE ON NIGERIA’S ECONOMIC GROWTH (1980-2013)

IMPACT OF EXTERNAL TRADE ON NIGERIA’S ECONOMIC GROWTH (1980-2013)

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Starting from Adam Smith’s discussion on specialization and the extant of the market by external trade, to the debates about import substitution versus exported growth (growth based on exporting more goods and services), to recent work on increasing returns and endogenous growth models, there are increasing debates among economists about the external trade and economic growth ( Dushko and Darko2013).

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 trade. Nigeria is basically an open economy with international transactions constituting a significant proportion of her aggregate output (Mike and Okojie 2013). The Nigerian government like many other developing countries considers trade as the main engine of its development strategies, because of the implicit belief thattrade can create jobs, expand markets, raise incomes, facilitate competition and disseminate knowledge (Ogbajiand Ebebe 2013).Nevertheless, while trade between countries may generate growth globally, there are no guarantees that its aggregate benefits are distributed equitably among trading partners. There are winners and losers in any trading relationship. However trading partners all may gain differing degrees. Many factors determine the extent to which a country may benefit from a trading relationship. These include the terms of trade a country faces vis-à-vis its trading partners, the international exchange rate among the traded goods and the market characteristics of the country’s exportable goods (Eravwoke and Oyovwi 2013).This has been the experience of Nigeria since the 1960s even though the composition of trade has changed over the years. Foreign trade has been an area of interest to decision makers, policy makers as well as economists. It enables nations to sell their locally produced goods to other countries of the world (Adewuyi, 2000) as quoted by (JohnAiyelabola 2013).The word trade has been defined in the Oxford Advanced Learner dictionary as “the activity in which people are buying and selling or exchanging the goods and services between countries”.  External trade is the exchange of capital, goods, and services across international borders. Zahoor,Imran,Anam,Saif-ullaha,Ashraf (2013) said it is a system where the goods and services are advertised, sell and switched between two or more than two countries through import and export.

The role of foreign trade in economic development is considerable. The classical and neo-classical economists attached so much importance to foreign trade in a nation’s development that they regarded it as an engine of growth. Over the past several decades, the economies of