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

trade via scale effects can be found in the models of Rivera-Batiz and Romer (1991), and Grossman and Helpman (1991a). Jones (1995) argues that scale effects are at odds with the existing empirical evidence of OECD countries. (b) Allocation effects: The static gains from the reallocation of resources in neoclassical models can be sustained and transformed into a growth effect, if the changes in the composition of national output are related to the production of accumulable factors. For developing countries, however, access to cheap imported capital goods is perhaps the most compelling mechanism linking trade and growth. Protection policies that restrict the import of capital equipment reduce real investment and lower the rate at which physical capital accumulates. As a result, the rate of long-run growth is – as commonly predicted by the endogenous growth theory – reduced, and if technical progress is embodied in capital goods, the negative impact of protection on growth will be magnified. (c) Spillover effects: Integrating world markets facilitates access to the knowledge available in other nations. Technical progress embodied in goods represents an opportunity for countries engaging in international trade to learn from trading partners. In the literature investigating the link between growth and trade via technological spillovers, the diffusion process is modeled in two main ways. It can be a non-purposeful activity where trade simply provides economies access to a world pool of knowledge that is freely available. Feenstra (1996) and Grosssman and Helpman (1990, 1991c) adopted this approach. The second approach models the diffusion as a purposeful activity in which the less developed countries can imitate technology available in the more developed countries. (d) Redundancy effects: The redundancy effect of trade policy on growth is closely related to the characteristics of knowledge. Since knowledge is a non-rival good, opening the economy can reduce the unnecessary waste of resources devoted to Research and Development from a global point of view. Increased foreign competition in Research and Development as a result of trade liberalization can eliminate redundancy in research across countries. Theoretical models in which the redundancy effect is used can be found in Grossman and Helpman (1991a) and Rivera-Batiz and Romer (1991). The theoretical possibility that trade liberalization might have a negative effect on economic performance has been demonstrated in various endogenous growth studies. In Lucas (1988), free trade might cause a country sufficiently to move far from its steady state to become completely specialized in low-technology goods with its short-run comparative advantage, although it has a long-run comparative advantage in high-technology goods. Young (1991) shows that trade liberalization might cause the less developed countries to specialize in the production of “old” goods with little gains from learning by doing. Consequently, growth could be higher for less developed countries under autarky than under free trade, despite some static gains from trade. iii. Empirical Review Ige (2006) posited that the first-best rules of thumb that may be appropriate for the highly distorted economies are not necessarily appropriation for economies that have liberalized as much as Nigeria. He argued further that piecemeal across-the-board tariff reductions in Nigeria are not always beneficial from a welfare perspective and generally must be coordinated with export subsidy reductions to ensure welfare gains. Bakare and Fawehinmi (2011) examined the relationship between trade openness and industrial productivity in Nigeria. Using a parsimonious error correction mechanism, the empirical results show that there is a significant relationship between trade openness and industrial productivity in Nigeria. It shows that trade openness led to an increase in export and consequently increases industrial output. Adenikinju and Chete (2002) studied the effect of trade liberalization on the total factor productivity performance of the Nigerian manufacturing sector. This was accomplished in two stages. First, the TFP indicator was estimated at the firm level using the fixed effect model. Second, the TFP indicators so generated were regressed against trade liberalization and market structure variables. Two important findings from this research of concern to policy makers deserve amplification. The first is the relatively low productivity in the Nigerian manufacturing sector. This could be attributed to a plethora of factors, including a weak technological base and low level of capacity utilization. The second major finding from this study is that there are significant pay-offs from the policy of trade liberalization. The current policy of trade liberalization, which emphasizes lower tariffs and increasing openness of the economy, was found to be growth enhancing. Quite interesting is the role of Foreign Direct Investment in productivity growth at both firm and sectoral levels. There is a spillover effect generated by foreigners in the economy. Thus, the implementation of policies that encourage or restrict foreign ownership can be expected to have direct effects on industry performance, quite apart from the indirect effects that result from modification of the behavior of locally owned firms or changes in the size and distribution of firms. Ogunkola et al (2006) studied the impact of trade and investment policy reform in Nigeria. Their findings suggest that these do not appear to have significantly affected the manufacturing sector. Specifically, manufacturing investment growth is positively related to manufacturing output growth but negatively associated with the sector’s export and non-export growths. The trade policy reform dummy © 2022 Global Journals Volume XXII Issue II Version I 73 ( ) Global Journal of Human Social Science - Year 2022 E Impact of Trade Liberalization on the Nigerian Manufacturing Sector