Trade Liberalization and the Performance of the Manufacturing Subsector in Nigeria

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. 

Keywords: {'name': 'Trade Policy; Economic Growth; Manufacturing sub-sector; Threshold'}

Authors & affiliations

Collins Onuosa
Affiliation not supplied

Uyu Eta
Affiliation not supplied

Nenubari John Ikue
Affiliation not supplied

Ibimna Ikemenjima
Affiliation not supplied

Bethel Njoku
Affiliation not supplied

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