Abstract There is no consensus among economists about how export affects productivity. Some argue that export oriented economies are opened to foreign competition which may lead to closure of local industries once they cannot withstand the competition. Others argue that export brings about competition which improves efficiency and productivity. This paper tries to establish and test the relation between these two variables using Nigeria as a case study. In view of this both stationarity and cointegration tests are conducted and the results portray that the two have a long term relationship. It goes further to test for OLS where the result shows that export is a positive determinant of GDP. Again, the ECM test is conducted and the Error Mechanism Coefficient is found to be significant. 1.1 BACKGROUND OF THE STUDY Nigeria like many other Developing African countries started as agrarian economy. The agricultural produce of the early Nigeria include groundnuts, rubber, timber, cocoa, beans, palm kernel, hides and skin, to mention just few. These products as declared by Rano and Tsauni (2006) accounted for over 50 percent of Gross Domestic Product(GDP) and was the main source of export earning and public revenue. With the crude oil discovery in 1956 and its exploration in commercial quantity in 1958 however, the oil sector gradually became the dominant sector in the economy, and almost the sole source of export earning. For instance in 1970’s petroleum constituted of about 78 percent of Federal Government revenue and more than95 percent of export earning (World Bank, 2002). With the oil 1
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EXPORT AS THE DETERMINANT OF NIGERIAN ECONOMIC GROWTH
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Abstract
There is no consensus among economists about how export affects productivity. Some argue that
export oriented economies are opened to foreign competition which may lead to closure of local
industries once they cannot withstand the competition. Others argue that export brings about
competition which improves efficiency and productivity. This paper tries to establish and test the
relation between these two variables using Nigeria as a case study. In view of this both
stationarity and cointegration tests are conducted and the results portray that the two have a
long term relationship. It goes further to test for OLS where the result shows that export is a
positive determinant of GDP. Again, the ECM test is conducted and the Error Mechanism
Coefficient is found to be significant.
1.1 BACKGROUND OF THE STUDY
Nigeria like many other Developing African countries started as agrarian economy. The
agricultural produce of the early Nigeria include groundnuts, rubber, timber, cocoa, beans,
palm kernel, hides and skin, to mention just few. These products as declared by Rano and
Tsauni (2006) accounted for over 50 percent of Gross Domestic Product(GDP) and was the
main source of export earning and public revenue. With the crude oil discovery in 1956 and
its exploration in commercial quantity in 1958 however, the oil sector gradually became the
dominant sector in the economy, and almost the sole source of export earning. For instance
in 1970’s petroleum constituted of about 78 percent of Federal Government revenue and
more than95 percent of export earning (World Bank, 2002). With the oil boom in the mid –
1970s (1973) however, the country’s foreign exchange earning raised immensely, which
translated into higher economic growth, to the extent that there was no fear of expenditure in
the part of government even on necessary issues.
With the fall in oil prices in the late 1970s and early 1980s, there ware enormous
macroeconomic problems which include Balance payment deficit high rate of
unemployment, budget deficits, price instability and more importantly less, or even negative
growth. These were the products of the overdependence on oil sector, to the extent that the
economy had to borrow externally to sustain the huge deficit in government expenditure.
These developments came at the stage when the manufacturing share in GDP was relatively
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very small at an average 5.6 percent for the last half decade, while its share in total export
translated to merely non-noticeable figure of less than 1 percent for the same period.
In response to these enormous problems Structural Adjustment Program (SAP) was
introduced in 1986 in the country. This was to liberalize and diversify the economy. With
SAP in place, several export promotion strategies and policies especially on manufacturing
export were formulated, which include various incentives on export,Research and
Development (R&D) etc. Despite this effort to improve and diversify export the outcomes
were not recommended. This was because the share of manufacturing export remains so low
in the total export earning as compared to the oil sector in particular or primary goods in
general. Evidence shows that the share of manufacturing export as percentage of total export
remains less than 1 percent up to year 2000, as compared to average level of other sub-
Saharan African countries of 6.2 percent of more than 70 percent of Eastern Asian countries.
This is the nature and trend of Nigeria’s export over decades as well as how, from
experience, the fluctuations in the volume of the export affect the level of economic growth.
This paper is divided into three parts. The first part presents the background of the study,
followed by the objectives of the study. In the second part review of theoretical literatures is
presented, after which the empirical test is presented. The last part concludes the paper and
possible recommendations are made.
1.2 OBJECTIVES OF THE STUDY
The objectives of this paper are as follows:
- To test empirically the relationship between export of commodities and economic growth
in Nigeria. In this case empirical data is collected and relationship between
manufacturing export and the GDP is analyzed.
- To analyze the problems facing export of commodities in Nigeria.
- To propose solutions to the problems as my recommendations.
2.0
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3.0 LITERATURE REVIEW
Exports are the goods and services produced in one country and sell to earn foreign
exchange which can be used to purchase goods and services from another country, thus
leading to specialization (Jafiya, 2004).
Exports are of two broads categories. First, primary commodity exports comprising mainly
agricultural produce and minerals. Second, manufacturing export, which include industrial
finished and semi-finished goods.
In the present day of growing interdependence among the world economies through the
process of globalization and trade liberalization, no country can stand alone or live in
isolation. This is because most, if not all, of trade and development theories show the
certainty of increased productivity and welfare improvement once an economy engages in
bilateral or multilateral trade. Equally important is the nature of the trade as well as the type
of commodities that are traded. This is because as emphasized by Todaro and Smith (2009),
African countries that engage mostly in the export of primary products (what they called
primary-product export dependence) carries with it a degree of risk and uncertainty that few
nations desire. This is important issue because despite strength since 2002, the long-term
trend for prices of primary goods is downward, with the exception of mineral, ores and
metals which witnessed a slide rise in 2003. Hence there is the need to diversify the export
based of their economies to manufacturing export if they are to flourish.
Evidence from Newly Industrialized Economies (NIEs) shows that the export of non-
traditional products, semi-manufactured and manufactured goods are behind the success of
such country like South Korea, Taiwan, Singapore, Hong Kong, Thailand, Brazil and Turkey.
In spite, the recognized importance of export of manufactured goods in achieving economic
growth, Nigeria like many other African countries still depends heavily on the export of
primary goods which stands at 98 percent of the total export earnings in 2005 (Todaro and
Smith, 2009). This menace coupled with her heavy reliance on the importation of
manufactured consumer and capital goods to satisfy her rising consumption aspirations of the
increasing population, and raw materials as well as machineries for its local industries results
in Balance of Payment problem in the country, whereby, the payment made on imports is
increasing as compared to the export receipts for goods and services.Being net export (Export
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less Import) one of the determinants of National Income, this tragedy of higher import with
fluctuations in the volume of export affects income (GDP) adversely.
Consider the table below:
Selected Domestic and External Macroeconomic Indicators (1986-2003).
YEAR %
GROWTH
IN GDP
MANUFAC.
GOODS (AS
% OF GDP)
MANUFAC.
EXPORT(AS
% OF
TOTAL
EXPORT)
MANUFAC.
IMPORT
(AS % OF
TOTAL
IMPORT)
CAPACITY
UTILIZATION
1986 -3.70 9.00 0.40 19.3 38.8
1987 4.00 9.66 0.20 25.1 40.4
1988 13.9 9.79 0.29 23.1 42.4
1989 2.20 8.24 0.19 20.1 43.8
1990 4.90 8.19 0.20 22.0 40.3
1991 9.40 8.26 0.10 23.5 42.0
1992 -4.50 7.86 0.10 23.0 38.1
1993 -3.70 7.34 0.20 24.0 37.2
1994 -1.30 6.90 0.20 22.2 30.4
1995 -5.20 6.65 0.20 23.2 29.3
1996 0.80 6.48 0.20 28.1 32.5
1997 0.40 6.29 0.40 29.2 30.4
1998 -6.90 5.92 0.53 29.7 32.4
1999 3.40 4.73 0.34 29.4 35.9
2000 3.40 5.95 0.30 29.0 36.1
2001 7.00 5.95 0.84 29.0 39.6
2002 10.10 4.59 2.34 28.9 44.3
2003 5.7 4.08 1.38 23.8 46.2
Source: Rano and Tsauni 2006.
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The figures above reflect the weak nature of the Nigerian manufacturing export, which stand
at less than 1 percent of total export throughout the period with exception of 2002 and 2003,
despite the various measures introduced by the government to improve the export of the
manufactured goods. These policies include minimum local raw materials utilization, Export
C 3.836223 0.545992 7.026151 0.0000LNEXPORT 0.717831 0.056134 12.78791 0.0000
R-squared 0.844986 Mean dependent var 10.78637Adjusted R-squared 0.839819 S.D. dependent var 0.737404S.E. of regression 0.295129 Akaike info criterion 0.457652Sum squared resid 2.613031 Schwarz criterion 0.549260