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Trade Liberalization and the Performance of the Manufacturing Subsector in Nigeria

Author

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  • Collins Obieze Onuosa
  • Uyu Eyo Ita
  • Nenubari John Ikue
  • Ibimna Otoru Ikemenjima
  • Bethel Njoku

Abstract

Trade liberalization is a widely accepted policy for fostering economic growth, particularly in developing countries. Advocates argue that open economies, through increased competition, specialization, and access to global markets, outperform closed economies. However, the short-term effects on developing economies like Nigeria remain debated, especially within the manufacturing sector. Nigeria's trade policy has fluctuated between protectionism and openness, significantly influencing its manufacturing performance. Critics, drawing from dependency theory, argue that liberalization exposes weaker economies to exploitation by stronger nations, leading to trade imbalances and inhibiting industrial growth. This study investigates the nonlinear effects of trade liberalization on Nigeria’s manufacturing sector, addressing a gap in the literature by employing a quadratic approach to determine threshold effects. By incorporating a quadratic form of the trade variable, the study tests the hypothesis that trade liberalization initially boosts the manufacturing sector but results in diminishing returns as openness intensifies. The research is framed within the Laffer Curve of Trade, suggesting that beyond a certain threshold, excessive openness may harm the manufacturing sector. The AutoRegressive Distributed Lag (ARDL) model is used to assess both short-run and long-run effects, with findings indicating a convex relationship between trade liberalization and manufacturing output, highlighting the critical importance of identifying optimal policy thresholds to maximize industrial growth.Â

Suggested Citation

  • Collins Obieze Onuosa & Uyu Eyo Ita & Nenubari John Ikue & Ibimna Otoru Ikemenjima & Bethel Njoku, 2024. "Trade Liberalization and the Performance of the Manufacturing Subsector in Nigeria," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 13(3), pages 60-68, September.
    • Handle: RePEc:rbs:ijfbss:v:13:y:2024:i:3:id:3645
    DOI: 10.20525/ijfbs.v13i3.3645
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    References listed on IDEAS

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    1. Nenubari Ikue John & Ifeanyichukwu Lucky Amabuike & Joseph Ade Ajaba & John Akin Sodipo & Linus Bamekpari Enegesi, 2020. "Financial system, trade concentration and economic growth in West African Monetary Zone (WAMZ)," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 9(4), pages 426-436, July.
    2. Pam Zahonogo, 2016. "Trade and economic growth in developing countries: Evidence from sub-Saharan Africa," Journal of African Trade, Springer, vol. 3(1), pages 41-56, March.
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