Household Welfare Impact of Trade Liberalization in Nigeria: A Computable General Equilibrium Model

Trade liberalization policy across countries of the world gathered momentum in the 1990s and has not abated ever since. The major impetus for these policy reforms has been the strong desire of countries to harness the benefits embedded in international trade (this is as suggested by the recent experiences of economic growth in many economies particularly, the emerging market economies), and hopefully increase the standard of living of citizens. While the empirical link between trade liberalization and its economic growth outcomes in Nigeria has received considerable attention in the literature, the household welfare impact or income distributional effect of this policy remains under-researched. This study examines the various household welfare scenarios that will result from the imposition of shocks on import tariffs in the Nigerian economy. To achieve this, the paper utilizes the computable general equilibrium model based on a 2006 social accounting matrix for Nigeria to conduct a macro-micro simulations of the economy. The computable general equilibrium model is implemented in a static module making it a good instrument for controlled policy simulations and experiments. The paper further tracks the patterns of possible welfare losses or gains for the rural and urban households under the various simulations. Some of the major findings suggest that a liberalization policy will particularly hurt the agricultural sector as the policy will induce a shift in consumption preferences within this sector from domestic production to imports. Overall, a complete or partial removal of import tariffs will also hurt the rural households more than the urban households in Nigeria.