NIGERIA’S MULTILATERAL TRADE RELATIONS WITH THE G8 ECONOMIES

ABSTRACT

It is an undeniable fact that trade has been facilitating growth and development of countries across the world. This underscores the recent upsurge in establishing multilateral trade relationship between Nigeria and other countries especially, the G8 member countries. While these realities are still contestable in terms of the potential benefits of the trade linkage that Nigeria stands to gain, the trajectory of the influx of export to Nigeria from the latter countries calls for a concern and a need to investigate the possible socio-economic, political and geographical variables that trigger this trend. It is in view of this, that this study empirically investigates the magnitude of the factors driving increasing Nigeria-G8 multilateral trade relations. To achieve this, we employ the augmented variant of gravity model (GM) that allows for the inclusion of country specific and country-pair characteristics in addition to the traditional GM variables (income and distance). We find that Economic Size, Population, the Geographical Landmass, Degree of Trade Openness, and Exchange Rate of the trading partners, drive multilateral trade flows between Nigeria and the G8 member countries. Therefore, promoting a broad-based diversification of the Nigerian economy is crucial for more beneficial Nigeria-G8 trade relations.

TABLE OF CONTENTS

                                                                                                                     Pages

Title Page                                                                                                               i

Certification                                                                                                      ii

Dedication                                                                                                               iii

Acknowledgement                                                                                                 iv-v

Abstract                                                                                                                      vi

Table of contents                                                                                               vii-ix

List of tables                                                                                                               x

CHAPTER ONE                                                                                         

1.0       Introduction                                                                                                    1

1.1       Background of the study                                                                          1-3

1.2       Statement of the Problem                                                          4-6

1.3       Objectives of the study                                                                            7

1.4       Research Hypotheses                                                                        7

1.5       Significance of the study                                                                      7

1.6       Scope of the study                                                                                      8

CHAPTER TWO

2.0       LITERATURE REVIEW                                                                        9

2.1.      Conceptual framework                                                                         9

2.1.1   Understanding the concept of Trade integration                         9-11   

2.1.2   Globalization and Trade Integration                                          11-13

2.2       Theoretical Literature                                                           13-17

2.2.1   Understanding the G8 and its Multilateral Relation                  17-20

2.3       Empirical Literature                                                                             20-23

2.4 Limitations of Previous Studies                                                               23

CHAPTER THREE

METHODOLOGY

3.1     Theoretical Framework                                                                     24-25

3.2     Model Specification                                                                          25-28

3.3     Estimation Procedure                                                                        28-29

3.4     Data Issues                                                                                        29-30

CHAPTER FOUR

DATA ANALYSIS AND RESULTS PRESENTATION

4.1     The basic Newtonian Form of Nigeria G8 Multilateral

Trade Gravity Model                                                                         31-32

4.2     The Augmented Nigeria G8 Multilateral Trade Gravity Results                 33-40

4.3     Model Specification                                                                          41-42          

CHAPTER FIVE

SUMMARY OF THE STUDY, RECOMMENDATIONS ANDCONCLUSION

5.0     Summary of the Study                                                                      43-44

5.2     Policy Recommendation                                                           44-45

5.1     Conclusion                                                                                        46

References                                                                                                  47-53

Appendices                                                                                                54-63

LIST OF TABLE’S

Table1.1                         Nigerian Trade with G8 Partners 2007                          5

Table 3.1                        The Sampled Countries used for the Study         30

Table 4.1                        The basic Newtonian form of GM for Nigeria G8 Multilateral Trade Relations.             32     

Table 4.2                        Comparison of the Pooled fixed effects and Random effect GM for Nigeria G8 MT.                39-40

Table 4.3                        Models Comparison.                                           42    

CHAPTER ONE

1.0                                              INTRODUCTION

BACKGROUND OF THE STUDY

Development in international trade over the decades points to the fact that countries of the world cannot live in isolation. A close look across different political and economic climates of the world shows that this phenomenon has assumed a more competitive and multi-dimensional scale. Lurking at the background of multilateral trade relations is a quest to complement a country’s production deficiencies or limited resources by exploring available opportunities in some other countries. Global trade has expanded significantly since World War II and many countries have benefited from increased cross-border trade and investments for reasons which include: lower transportation and information costs, higher per capita income and changes in government policies (Onwuka and Eguavoen 2007 andKrol 2008). As a result, there is a global call for more trade across borders. This call has elicited one of the most enduring debates among policy makers in the world.  Economists tend to believe that movements toward trade relations among countries, on balance, provide positive benefits. For instance, increased trade and investment flows help countries to develop faster than it should as trade generates income and the flows enable them to increase their stock of productive capital without compromising their level of consumption (Onwuka and Eguavoen 2007).

It is obvious that views would vary as some other economists like McCalman (2004) are of the opinion that when countries embark on a process of unilateral (or multilateral) trade arrangements, a period of backsliding is not far away. The main reason for this skepticism is the existence of groups with vested interests in maintaining tariff protection. Differences in production costs within countries determine much of the flow of goods and services across international borders in line with the concept of comparative advantage but not every nation is a full member of the global village especially, a developing country like Nigeria (Onwuka and Eguavoen, 2007). Developing countries are losing out as they experience the worsening of existing imbalances and distortions in the global economy which manifest in form of unequal distribution of political, economic and military power. The implication being that while global trade has created immense opportunities of wealth for some, it has produced two contrasting global villages – one which indeed is prosperous, rich and democratic for a few who live in it, and another in which the majority are poor, alienated and marginalized with hardly any voice to determine their own destiny (Collier and Dollar 2001, Zuma 2003).

Nigeria has trade relations with The Group of Eight (The G8); a group described as the world’s “most powerful” economic and political organizations in the world. The group participants have consistently supported the role of the General Agreement on Tariffs and Trade (GATT), and since 1995 its successor, the World Trade Organization (WTO), in monitoring multilateral trade agreements with a view to ensuring the openness of the international trading system, and as a forum for negotiations (Ulrich 2006; Adler 2008). However, it has been observed that Africa remains basically outside the global trading and investment system. At the end of the 1990s, a decade of globalization in finance and trade sees Sub-Saharan Africa still accounting for less than 2% of world trade and received less than 1% of global capital flows. A majority of the least-developed countries including Nigeria are in this category, and even the “middle-income” countries have suffered severe declines in per capita gross national product for year. (Wood and Browne, 2004).

The main thrust of Nigeria’s trade policy is the integration of the economy into the global market system(Briggs, 2007; Oyebanjo et. al. 2009). This entails progressive liberalization to enhance competitiveness of domestic industries; effective participation in trade negotiations to harness the benefits of the multilateral trading milieu; promotion of transfer, acquisition and adoption of appropriate technologies; and support for regional integration and co-operation. Thus, the government of Nigeria has a every opportunity reiterated its commitment to the principles and objectives of the multilateral trading system (WTO, 2005).

 In response, there has been a remarkable increase in external trade and openness in the Nigerian economy over the two decades and has even grown more rapidly in recent times, especially since 2002 (Obiora, 2009). Nigeria became a founding member of World Trade Organization (WTO) with the coming into effect of the Marrakech Agreement establishing the Organization, in January 1995. However, Nigeria’s involvement in the multilateral trade system dates back to 1960, when the country formally joined the General Agreement on Tariffs and Trade (GATT) after gaining independence from colonial rule (Briggs, 2007). Trade openness has risen from just above 3% in 1991 to over 11% by 2008. Direction of trade data indicates that the US, the EU, and Brazil are Nigeria’s largest trade partners while US is Nigeria’s single largest trade partner as it accounts for nearly 45% of Nigeria’s export. However, oil exports account for the vast bulk of total exports (Briggs, 2007).

From the forgoing, one cannot say with precision how Nigeria’s multilateral trade activities especially with the G8, have fared or impacted on Nigeria’s economy. This indeed is an empirical puzzle this work wants to investigate.

1.2 STATEMENT OF THE PROBLEM