Trade Liberalization And Performance Of The Manufacturing Sector In Nigeria.

ABSTRACT

International trade has broadened possible opportunities available to countries for upgrading economic activities, including the development of manufacturing. Since the late 1980s, Nigeria has progressively pursued trade liberalization which has significantly exposed manufacturing activities to the international market. The goal was to raise the GDP share of manufacturing, share of manufactured exports in total merchandise exports, and manufacturing sector capacity utilization to 25 per cent, 8 per cent, and 60 per cent respectively by 2010. However, the GDP share of manufacturing remained at 9.69 per cent in 2015, share of manufactured exports in total merchandise exports was 2.92 per cent in 2015, and level of capacity utilization in the sector stood at 53.6 per cent in 2015. Therefore, concerns arise as to what the effect of freer trade is on performance of manufacturing in Nigeria. This study sought to analyze the effects of trade liberalization on performance of the manufacturing sector in Nigeria by specifically determining the effects on firm productivity, exports, and competitiveness. To address the specified objectives, the study made use of the quarterly firm-level data from the survey of manufacturing industry in Nigeria for the period 2008 to 2010. The data reported information for firms in organized cohorts based on their location, industry activity and size characteristics. Appropriate Fixed Effects and Random Effects estimation techniques were employed for the analysis. The results obtained are indicative of the position that whereas the import aspect of trade liberalization impedes productivity, the exports component enhances productivity. Thus, measures aimed at encouraging exports would be relatively more effective in improving productivity. Also, the findings show that higher productivity does not influence the decision on whether or not a firm would participate in exports, but higher productivity increases the share of exports in total sales for firms that are already participating in foreign markets. Furthermore, the results provide some evidence on the import discipline effect of trade liberalization thereby attesting to the notion that trade liberalization is a channel through which the competitiveness of firms in the manufacturing industry in Nigeria can be improved upon. Based on the findings, it is important that the government engages in more bilateral and multilateral trade negotiations, and establish certification centres across the country to expand exports. Also, it is necessary that the Nigeria Export Processing Zones Authority continue the expansion of free trade zones to encourage exports of local produce.Additionally, exporting firms should invest in the development of their human capital to improve the productivity of their employees towards increasing their share of exports in total sales. These measures are essential if trade liberalization is to enhance performance in the manufacturing sector in Nigeria.