Trade Liberalization And Performance Of The Nigerian Textile Industry

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Trade Liberalization And Performance Of The Nigerian Textile Industry


Abstract


Nigerian textile industry is characterized with ineffective incentives, political uncertainty, acute power shortage, poor infrastructure, smuggling and red-tape bureaucracy, among others. However, government of Nigeria in appreciation of the role of industrialization in growth process now motivates firms. This is done through various government policies and establishment of various agencies. All these policies were designed to address these problems and encourage textile industry performance with a view of diversifying the productive base of the economy and increase its output for both domestic and export earnings. These problems necessitated the need to examine the effect of trade liberalization on textile industry performance in Nigeria.

The study modified the endogenous growth model within a time series estimation techniques of Autoregressive Distributed Lagged model (ARDL). The data spanned between 1986 and 2015, while four different models were tested. Findings revealed a co-integrated relationship for all model estimated. Specifically, the effect of simple tariff rate on textile industry is negative and statistically significant in the long-run; while trade liberalization policy measure through simple tariff rate has a lag effect before it can be effective in the textile industry. In both short and long run, real effective exchange rate depreciation worsens the performance of textile industry in Nigeria. Similarly, the effect of weighted tariff rate on textile industry is negative and statistically insignificant, while short-run result evidence that trade liberalization policy measure through weighted tariff rate has a lag effect before it can impact on textile industry performance in Nigeria. Specifically, a 1.0% rise in past weighted tariff rate value (trade liberalization policy) raises the level of textile performance by about 0.99%, while the current increases in tariff rate improve the textile industry performance by 1.19% over the period of analysis, though not significant. In the long run, a 1.0% rise trade openness would decrease the level of textile industry performance by about 17.49%. Thus, factors affecting textile industry performance in the short run are simple tariff rate, exchange rate changes, trade openness and labor and capital inputs in Nigeria. Similarly, causality tests results showed unidirectional causality running from trade liberalization (both measure) to textile industry performance.

The study concluded that trade liberalization has both lag and significant effects on the performance of the Nigerian textile industry from 1986 to 2015. It was recommended that government should make concerted efforts toward providing a favorable and conducive business environment for the textile industry to strive.


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Frequently Asked Questions


When did textile industry start in Nigeria?

The modern industrial production of textile was pioneered by the Kaduna Textile Mills that was established in 1956 and followed by the establishment of Nigerian Textile Mills in 1960. Table 1.1 below shows the prominent textile firms in Nigeria in the 1960s by their locations and year of establishment.

What is the relationship between Nigeria and its trading partners?

Trade arrangements and engagement between Nigeria and its trading partners are in tandem with the magnitude of various endowments the country possesses.

Does free trade harm fragile industries and their workers?

However, in contrast with the assertion of the proponents of trade liberalization, critics of free trade emphasize that there is likelihood that trade liberalization may harm fragile domestic industries and their workers, more than the economy as a whole (Czinkota, 2010; Bittencourt, Larson & Kraybill, 2010; Borraz, Rossi & Ferres, 2012).

What is the best indicator of trade liberalization?

Following the literature, two popular trade liberalization indicators have been chosen in this study; most favored nation (MFN), simple mean, all products (%), and weighted mean, all products (%). The first trade liberalization variable used in this thesis is the tariff rate, MFN simple mean for all products.

Why textile industry is called market oriented industry?

Textile industry is a market oriented industry because most of the textile industry are near that place where are the favorable climatic conditions are available. They need warm & moist climate, availability of raw materials & skilled labors. These industries include fibers like silk,cotton,linen & jute.

Does the textile industry come under oligopoly?

The competition can be controlled and managed by the Indian government since they run Indian Railways. In a general free-market society, it might be hard to argue that clothing shops, stores, and brands are tantamount to an oligopoly. Competition is not limited to a small number of sellers.

What is the trade relationship between the US and Nigeria?

In 2019, the two-way trade in goods between the United States and Nigeria totaled over $10 billion. U.S. exports to Nigeria include wheat, vehicles, machinery, kerosene, lubricating oils, jet fuel, civilian aircraft, and plastics. Nigerian exports to the United States included crude oil, cocoa, cashew nuts, and animal feed.

Who are Nigeria’s biggest trade partners?

A close look at the data shows that India is Nigeria’s biggest export market, while Nigeria’s biggest imported goods came from China. Here is a breakdown of Nigeria’s biggest trade partners in Q1 2019. 1. India: In the first quarter of 2019, India accounted for 16.43% of Nigeria’s total export.

Does Nigeria still trade with the UK?

Despite still trading with the UK, Nigeria now conducts most of its trade with the some of the world’s largest economies including the EU, USA and India. Since becoming independent oil has become Nigeria’s main natural commodity export.

What is the relationship between China and Nigeria?

In 2011 Nigeria was the 4th largest trading partner of China in Africa and in the first 8 months of 2012 it was the 3rd. In April 2018, Nigeria signed a $2.4-billion currency swap deal valid for 3 years. In 2019, bilateral trades between China and Nigeria reached $19.27 billion.

Are free trade agreements good or bad for the economy?

Many governments have engaged in free trade agreements to facilitate the growth of regional production networks and global value chains, but critics argue that such agreements damage domestic industries.

How does free trade affect the steel industry?

By opening up borders, free trade can open up domestic industries to all kinds of competition. The overcrowding of foreign companies can eliminate entire sectors that can’t keep up. Steel is one such industry that has taken a hit in Europe and North America.

Does free trade cause jobs to be outsourced?

Free trade causes jobs to be outsourced because international workers are either more experienced, cheaper to hire, or are willing to work with fewer safety protections. Tariffs and taxation policies help to reduce labor outsourcing because it keeps product pricing at competitive levels.

Can free trade improve the safety of workers?

Free trade can improve the safety of workers. When companies are reviewing their best practices, then there are several sectors that they review for improvements. Employee safety is usually one of the first beneficiaries of a free trade agreement.

Does trade liberalization promote economic growth?

BREAKING DOWN ‘Trade Liberalization’. Proponents of trade liberalization, however, claim that it ultimately lowers consumer costs, increases efficiency and fosters economic growth . Protectionism, the opposite of trade liberalization, is characterized by strict standards and market regulation.

Is trade liberalization a leading indicator of domestic financial liberalization?

We find strong evidence that trade liberalization is a leading indicator of domestic financial liberalization.

What are the leading indicators of Capital Account Liberalization?

And, trade and domestic financial liberalization should be leading indicators of capital account liberalization if countries follow McKinnon’s sequencing prescriptions. The lack of data on de jureregulation has so far prevented direct tests of the sequencing of liberalization policies.

What are the gains from trade liberalization in Figure 7?

The gains from trade liberalization shown in Figure 7are the estimates of the gains to developing countries from liberalization in the high income countries which appears in World Bank 2002, Table 6.1 (with exogenous productivity growth). 

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