Global Journal of Human Social Science, E: Economics, Volume 22 Issue 2

Nigeria’s trade policy from restrictive control to a more liberal stance. This was largely as a result of inefficiencies associated with control systems and their inabilities to achieve both internal and external balances. Faced with unfair competition, local manufacturers cried for governments’ intervention to ameliorate the situation. But the emerging signals from official circles point to government’s insensitivity due to a pact with World Trade Organization (WTO) trade liberalization policy in which Nigeria became a signatory over 10 years ago. While this position may be appreciated, it is necessary as a nation to acknowledge the lack of readiness to meaningfully participate in a globalized world of intense competition owing to some inadequacies created by inefficient infrastructure (for example, electricity, water, communication and transportation) and low capacity building. The trade liberalization situation has now been worsened by the recent introduction of ECOWAS Common External Tariff (CET). The Manufacturers Association of Nigeria is not comfortable with the business climate as regards the adverse effects on performance, employment and imports. In light of the issues that have trailed trade liberalization, the key research questions are; to what extent has trade liberalization been carried out in Nigeria? What are the effects of trade liberalization on the manufacturing sector? What are the effects of trade liberalization on productivity in the sector? II. R eview of R elevant L iteraure Trade liberalization is a key element in the fast-expanding globalization process. There is preponderance of evidence (Dollar, 1992; Ben-David, 1993; Edwards, 1998; Frankel and Romer, 1999; Sachs and Warner, 1995) that trade liberalization promotes higher growth rate of income and output. According to Bhagwati and Srinivasan (1999), numerous individual country studies over the past three decades suggest that “trade does seem to create, even sustain higher growth”. Growth in manufacturing industries is strongly related to overall growth in the economy – although the relationship differs substantially from country to country. The link of overall growth to manufacturing sector performance has been demonstrated both in cross-country analyses and for individual countries. For example Spanu, (2003), Thirlwall (2000), and Jomo and Arnim (2007) show that development, not only by contributing to a more efficient allocation of resources within countries, but also by transmitting growth from one part of the world to another. The idea that the trade policy regime of a country has an impact on the country’s trade and growth is not new and it dates back at least to Adam Smith. Broadly, as identified by Duncan and Quang (2000), there have been three theoretical approaches to the trade and growth nexus: Neoclassical, Endogenous Growth, and the Institutional approach. a) Theoretical Review i. Neoclassical Approach The neoclassical approach to the trade-growth nexus invokes general equilibrium models with constant or decreasing returns to scale. Moreover, it is built upon the choices of rational individuals acting solely through market. Trade patterns among countries are determined by comparative advantage, either in the form of technology differences as in Ricardian models or of resource endowment as in Heckscher-Ohlin models. The neoclassical models of international trade theory in general predict that a country will have static gains from lowering its trade barriers. One of the most important static gains from trade liberalization predicted by neoclassical model is the increase in allocative efficiency. Since trade policy has an important impact on the transmission of international price signals, lowering trade barriers would lead to a reallocation of resources to the sector with comparative advantage. As a result, resources are used more efficiently and the welfare of the country as a whole rises. The gains from trade liberalization are - by nature of the neoclassical models - static, and trade policy like other government policies has only level effect, not growth effect a well-known prediction of neoclassical growth models in Solow (1956) and Swan (1956). However, the validity of the key assumptions on which the neoclassical approach is built has been questioned by a number of economists. For example, Rodrik (1988), and Devarajan and Rodrik (1989) argue that scale economies and imperfect competition are prevalent in developing countries. They show that under these conditions, the welfare impact of trade liberalization becomes complicated. The theoretical possibility of a welfare-reducing impact from trade liberalization in the presence of imperfect competition and increasing returns to scale has been pointed out in others. ii. Endogenous Growth Approach The dynamic gains of trade liberalization are closely linked to writings on endogenous growth: “a new growth ” theory that has proliferated since the mid- 1980s. Much has been made of the endogenous growth trade theory. According to the endogenous growth theory approach, trade policy can impact on income and the long run growth through (a) scale effect; (b) allocation effect; (c) spillover effect; and (d) redundancy effect. (a) Scale effects: The integration of markets through trade can create scale effects via the integration of goods markets on flows of intangible and non-rival “knowledge capital”. Examples of dynamic gains from Volume XXII Issue II Version I 72 ( ) Global Journal of Human Social Science - Year 2022 © 2022 Global Journals E Impact of Trade Liberalization on the Nigerian Manufacturing Sector