Impact of Trade Distortions on Economic Growth: The Case of Nigeria

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Adeoye, B. W
Ajuwon, O
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Recently, economists and policy-makers have rekindled an interest in the links between trade policy and growth. In particular, there has emerged a large literature that revisits the empirical and theoretical linkages between the degree of an economy's openness to international trade and its real growth rate. While no real consensus has emerged in terms of theory or empirical regularities, the debate has largely focused on the linkages between measures of trade protection or other more domestic distortions and the rate of factor accumulation. This paper examines the possible impact of trade distortions captured by the nominal exchange rate on the growth of the Nigeria economy, The paper applies a simple ordinary least square (OLS) method to explore the links between trade distortions and economic growth in Nigeria. The result shows that one of the major distortions preventing the free flow of goods and services from the Nigerian economy is the vagaries in the behaviour of the exchange rate. The instability has been associated with Nigerian naira compared with other trading partners currencies has made the Nigerian economy to be uncompetitive in the international market. This has in turn affected the level of economic growth. Therefore, this paper supports the earlier hypothesis that trade liberalization in Nigeria has some negative effects on the growth of the economy. This paper reiterates that until the distortions to trade are removed the economy cannot adequately benefit from the ongoing reforms in the real sector. This calls for a need for the government to speed up the process of domestic reforms. Government must accelerate reforms in trade and industrial policies along with macroeconomic policies that provide a favourable environment for enterprises competing in the global market, as well as attracting foreign investors.
international trade , Economic policy , Trade distortions , Nigerian economy , Econoomic growth , Trade liberalisation , Macroeconomic policy , Foreign investors
Adeoye, B. W. and Ajuwon, O. (2010). Impact of Trade Distortions on Economic Growth: The Case of Nigeria. Paper presented at the 51st Annual Conference of the Nigerian Economic Society (NES), Abuja