ECONOMETRIC ANALYSIS ON THE IMPACT OF TRADE LIBERALIZATION ON INCOME DISTRIBUTION IN NIGERIA

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ECONOMETRIC ANALYSIS ON THE IMPACT OF TRADE LIBERALIZATION ON INCOME DISTRIBUTION IN NIGERIA

Introduction

Over the past few decades, Nigeria, like many other nations, has undergone significant economic transformations, with trade liberalization emerging as a prominent feature of its policy landscape. Trade liberalization involves reducing barriers to international trade, fostering economic openness, and encouraging the flow of goods and services across borders. Proponents argue that such policies stimulate economic growth and development, while critics express concerns about potential adverse effects on income distribution, particularly with regards to inequality. This study undertakes an econometric analysis to rigorously examine the impact of trade liberalization on income distribution in Nigeria.

Nigeria, as the largest economy in Africa, has pursued various economic reforms to enhance competitiveness, attract foreign investment, and integrate into the global economy. Against the backdrop of these policy changes, questions arise regarding the distributive consequences of trade liberalization. The nexus between trade policies and income distribution is a subject of considerable importance, as it intersects with broader debates on social equity, poverty alleviation, and inclusive development.

The rationale for investigating this relationship stems from the dual objectives of policymakers: fostering economic growth and ensuring that the benefits of such growth are equitably shared among the population. While trade liberalization can contribute to economic dynamism and efficiency gains, the potential repercussions on income distribution remain complex and multifaceted. Thus, a nuanced understanding of the trade-liberalization-income-distribution nexus is crucial for formulating evidence-based policies that align with Nigeria’s developmental goals.

This study employs rigorous econometric methods to analyze the intricate relationship between trade liberalization and income distribution. By employing robust statistical techniques, including regression analysis, the research aims to shed light on whether trade liberalization has a discernible impact on the distribution of income among various segments of the Nigerian population.

Data Selection:

Relevant datasets that include information on GDP, income distribution, inequality measures, and other socio-economic variables were used. These datasets cover different income groups and regions.

Inequality Measures:

Inequality measures was used to calculate and quantify the distribution of income within population. The changes in these measures over time or across different groups can be analyzed.

Income Mobility:

This work analyzes the extent to which individuals can move between income quintiles over generations. This could involve tracking changes in individual income positions.

Econometric Models:

This research employ econometric model such as regression model to estimate the relationships between GDP and income distribution while controlling for relevant variables. This model can help identify the factors influencing income distribution changes.

Background of the study

According to Adelowokan and Maku (2013) countries trade with each other because trading typically makes a country better off. In international trade, competition occurs at the firm level while citizens of every country can benefit from free trade. Citizens enjoy a greater variety of goods and services generally at a lower cost. Imagine a country that decides to isolate itself economically from the rest of the world. In order to survive the citizens of this country would need to grow their own food, make their own clothes and build their own houses. However if this country open its border to trade, its citizens would specialize in the activities they do best. Specialization leads to higher productivity, higher income and better living standards.

Can every country benefit from free trade? A fundamental principle of economic comparative advantage holds that when a country produces more of one product, it will create less of some other product. This trade-off occurs because resources are scarce and societies want to get the maximum benefit from them (Lopez, 2013).

Trade liberalization is a key economic reform policy and institutional change adopted by Nigeria in 1986 to stimulate its exports. Trade openness also aims at liberalization of the economy as well as achievement of greater openness and greater integration of the world economy (Harberzar, 2014).

Liberalization can simply be said to mean a shift from direct policy and regulatory controls to market driven behavior to set prices and allocate resources.

Trade liberalization deals with the increasing breakdown of barriers and the increasing integration of the World market ECOWAS, (2014).

Ayonrinde and Olayinka (2012) viewed adverse effect of trade liberalization on the rate of inflation when he said that lowering tariffs and relaxation of quantitative restriction can lead to expansionary fiscal and monetary policies. The goal of expansionary fiscal reform is to reduce budget deficit. The concomitant effect which is the rapid growth of money supply will inevitably boost price inflation in an economy. Jerome and Adenikinju (2013) opined that Nigeria’s non-oil export go mainly to West European Economic Community Countries and more so new markets are merging in Asia and other parts of the World especially in Sub-Sahara Africa.

According to Echekoba, Okonkwo and Adigwe (2015) the main purpose of trade liberalization is to allow countries to export those goods and services that they can produce efficiently while they import the goods and services that they produce

inefficiently.

Trade has long been identified as a veritable way through which the quest of nations for improved well-being of their citizens could be achieved. Adam Smith recommended division of labour, specialization and the pursuit of foreign trade as a way of increasing the wealth of nations Obadan, (2014) & Ajayi, (2015). He went further to state that division of labour was limited by size of the domestic market (Bakare, 2014).

Trade liberalization started in 1947 after the 2nd World war with the inception of the General Agreement on Tariffs and Trade (GATT). The GATT was negotiated in 1947 by 23 countries of which 12 are industrialized countries and 11 developing countries. The main focal point of GATT was to lower trade barriers. GATT was later replaced by the WTO (World Trade Organization) in 1994.

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