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Archives of Business Research – Vol. 9, No.2

Publication Date: February 25, 2021

DOI: 10.14738/abr.92.9176.

Odo, C. O., Ozoemenam, K. N., & Edeh, K. N., (2021). International Trade, Globalization and Nigerian Economy . Archives of Business Research, 9(2). 22-32.

International Trade, Globalization and Nigerian Economy

Dr. Cosmas Ogobuchi Odo

Department of Marketing

Enugu State University of Science and Technology, Enugu

Dr. Kenneth N. Ozoemenam

Social Policy Specialist

UNICEF, Enugu, Nigeria

Dr Kingsley N. Edeh

Faculty of Law

Enugu State University of Science & Technology,

Enugu, Nigeria.

ABSTRACT

Protagonists of free trade such as the World Bank and IMF are loud in

proclaiming the virtues of international trade and globalization. They

are quick to point out that granting free rein to these concepts would

not only lead to optimal resource allocation but also engender growth

in global economy. This paper sought to probe the veracity of these

claims in the context of a developing economy like Nigeria. The paper

first clears up conceptual issues involved and later cast the operations

of these phenomena within the Nigerian economic setting. It was

found that whereas industrial countries, in joint operation with their

multinational corporations, may have benefited immensely from the

opportunities created by international trade and globalization,

developing countries, characterized by weak technological base and

unfavourable macro-economic factors, have hitherto benefitted

minimally, but her losses far outweigh her gains such that she could

rightly be characterized as a net loser in the competition. It therefore

argues that countries like Nigeria should protect their domestic

markets from the negative impact of foreign trade and globalization. It

however recommends that Nigeria should adopt a selective

technological transfer that fits into her domestic need for economic

diversification via private sector-led initiatives.

Key terms: Globalization, International Trade, trade openness,

competition, global consciousness.

INTRODUCTION

Theory suggests that international trade and globalization espouse economic growth and

enhanced living standard of global citizens given favourable institutional structures (Lawal,

1982:247-248; Ianchovichina and Martin, 2004; Obadan, 1993; Williamson, 1997). But then the

query must be posed as to whether country-specific evidence supports this theoretical

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postulation? Though opinions vary on this, judgment one way or another are essentially

empirical considerations. For now, common sense conjecture may be inclined to believe that just

as nations of the world differ when evaluated on several parameters, so must the expected

impacts of these concepts vary in different economies. Hence, current economic and socio- political thoughts in Nigeria suggest a need to study these phenomena with a view to unveiling

their impacts on the economy. The approach of the paper is essentially historical. It first explains

the concepts, taken in order, and later probed the issue of whether these have morphed into a

twin evil or otherwise? A literature excursion was undertaken next to see whether there exists

any evidence as to the effect of international trade and globalization on Nigerian economy.

Conclusion was drawn and policy actions suggested.

International Trade: Historical Antecedents.

The economic doctrine that prevailed in the 17th and 18th centuries was mercantilism (Lawal,

1982:247-248). It was a doctrine that saw a virtue in being nationalistic and viewed the well- being of the nation as of prime importance. It favoured the regulation and planning of economic

activities as a better way of promoting the goals of the nation while viewing foreign trade with

suspicion (Ibid). It was held that the most important way of acquiring wealth was through the

accumulation of precious metals such as gold. Nations took care to restrict the outflow of their

gold through exchange of other commodities by restricting foreign trade; export was nonetheless

considered beneficial in so far as that encouraged inflow of gold. Therefore trade had to be

restricted and there was no particular virtue in increasing volume of trade. Viewed against the

backdrop of the immense value of international trade, it is little wonder that Adam Smith and

Ricardo countered this doctrine with their path-breaking contributions in economic thought.

Adam Smith saw the unparalleled benefits that could accrue to a nation through engagement in

international trade. He advocated the non-interference in international trade. As sound as Adam’s

reasoning was, it was considered not deep enough; hence Recardo and others took it from there

and explored and advanced more convincing argument in favour of international trade. Ricardo’s

argument is anchored on the principle of comparative advantage or comparative cost (Lawal,

1982:247-248). Simply stated the principle says that it pays more if parties in an exchange

concentrate in the line of trade or business where each enjoys a comparative advantage over his

fellow. By the same token, each nation of the world is encouraged to devote its resources in the

production of goods and services in which it has comparative advantage while depending on

other nations for the supply of other goods and services in which it has the least comparative

advantage. It is therefore argued that if each nation obeys this rule the global economy will be the

net beneficiary. Differences in terms of factor endowment, climatic and geological stock and skill

level differentials are among the strongest arguments for international trade. Again, the theory of

international trade is a special case of the theory of specialization by individuals and regions.

Today, there hardly exists autarchic economy anywhere in the world. What is more common

instead is the interdependence of nations and global co-operation for socio-economic and cultural

exchanges. The closing days of the last century witnessed phenomenal developments of global

dimension. Chief among them is the event, globalization. Debate rages on as to whether the

nations of the world have fared better or worse since the emergence of globalization. The

common thought popular among the advanced economies, represented by the World Bank and

allied institutions, is that it has improved global economy. However, the least developed countries

think differently. They are of the view that the phenomenon has created instant gainers and

losers with the developing countries belonging to the latter (Kimatu, 2012). In the next

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Odo, C. O., Ozoemenam, K. N., & Edeh, K. N. (2021). International Trade, Globalization And Nigerian Economy . Archives of Business Research, 9(2). 22-32.

URL: http://dx.doi.org/10.14738/abr.92.9176. 24

paragraph, globalization is introduced and explained. The nature of its impact is equally explored

with particular reference to developing economies which Nigeria typifies.

THEORIES OF GLOBALIZATION AND GROWING INTERCONNECTEDNESS.

The thesis of globalization rests on the idea that the nation-state is becoming irrelevant to the

actual flows of political, economic and cultural activity and to the formation of political identities

( Axford et al, 1997 :491-495). In fact, peering through the veil of time, like a literary prophet,

Rees-Moggg (1995) had argued that in 2025 great many changes would have taken place, largely

because of the impact of information and communication technologies upon many areas of life.

These technologies drive globalization. Globalization as a concept suffers from one defect namely,

the non-availability of a single definition that captures its multi-dimensional aspects. There

therefore exists a plethora of definitions. For instance, there is this idea of globalization given as

the multiplicity of linkages and interconnections that transcend the nation-state, McGrew, 1995

in Axford et al (1995:491-495). This definition, it is argued, affirms the growing volume of goods,

services, capital and people flowing across national boundaries. The point here is that the event

has redefined the way things are done generally. It affects both individuals and businesses. The

new concept of global consciousness has emerged to re-echo this fact. Business operators are

often advised to think globally and manage locally. This translates to mean that they should be

aware of the global forces acting on them, and as such should look at the world as a potential

operating whole, adapting their strategies and company cultures accordingly. This is one sense of

the phrase global consciousness. What to conclude from the views expressed above are two.

One, is that globalization is a process, not a given, made through interaction of various actors

namely, individuals, localities, groups, organizations etc. Two, is that the world is undergoing a

process of growing interconnectedness, so that it is becoming irrelevant to talk about separate

national economies or national companies, but it is necessary to talk about national and local

identities ( Axford 1997 et al, :491-495). Furthermore, a more functional definition globalization

exists. It could be rendered simply as the triumph of technology. However, Tandom (1997) was

more poignant when he described globalization as the final conquest of the world by capital. In

this third definition, three issues emerge, namely, the reality of an on-going economic battle

between developed and developing societies; the emergence of two possible outcomes, the

conqueror and the conquered or better still, gainers and losers; the instrumentation of capital as

the weapon of warfare. Hence, a society with great abundance of capital lords it over the less

equipped; Aside from the above issues, globalization everywhere connotes the following: a world

order characterized by free movement of capital funds, people, goods and services across

international boundaries; the diminution of spatial and temporal differences between different

points on the globe, achieved mostly through the powerful effect of information technology; the

emergence of virtual global village( every country is a part of a world community ); the increased

meshing together or integration of world economies such that events in one country have

implications for others and lastly, the explosion of information.

Following from the above, it is discernible that globalization is capitalism in operation.

Meanwhile, Marxist’s theory of history casts capitalism as a system based upon the uneven

development of colonial and metropolitan powers and on the systematic impoverishment of the

third world (Axford et al, 1997: 491-495). Axford et al, ( 1997 :491-495) argues that in current

world order, military imperialism has been replaced by forms of neo-imperialism carried on

through the imbalance of trade between the First and the Third World and the power of

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transnational corporations with their roots in the First World to dictate the terms of world trade

and investment. The First World is thus held as villain of underdevelopment of third world

economies whereby the latter supplies mainly raw materials and labour to the core economies

but the former produce and supply most high-value goods to the third world consumers, thus

draining off capital which might otherwise be used to fund domestic investment and industrial

modernization( Rodney, 1972:208). Clearly, globalization generates such intense competitive

pressures that could easily whittle down the value of local industries in developing economies.

Kotler and Armstrong (2005:589) gave a poignant hint to the effects of the said competitive

pressure along these lines,

“But today global competition is intensifying. Foreign firms are expanding

aggressively into new international markets, and home markets are no

longer as rich in opportunity. Few industries are now safe from foreign

competition. ...domestic companies that never thought about foreign

competitors suddenly find these competitors in their own backyard”.

And it should be pointed out that the said competition takes place within context of weak

technical and unfriendly macro-economic environments in the developing countries ( Adediran,

et al, 2015 ). The implication of this, for trade related purposes, is succinctly captured by Aluko et

al (2004) when they averred that the products of Nigerian manufacturing sector, for instance,

cannot compete with goods from advanced countries of the world most especially Europe and

America. This is so because the combined effect of the hostile operating environment tended to

make domestic products more expensive and inferior compared to the imported substitutes. It

does not therefore require a clairvoyant to predict who the gainers and losers of the contest are.

In Nigeria, different sectors of the economy reflect the ugly dimensions of the outcomes of the

competition. The paper looks into this later.

INTERNATIONAL TRADE, GLOBALIZATION AND THE ECONOMY: REFLECTIONS ON THE

THEORETICAL AND EMPIRICAL EVIDENCES.

Trade involves the exchange of goods and services. The exchange could take place within the

confines of a local economy- domestic trade or it might take place between one country and

another country- international trade (Ogwumike et al 2010:384). For a start, it needs to be

pointed out that there is no consensus of opinion yet on whether greater openness to trade

triggers economic growth or not. However, what the theory of comparative advantage suggests is

that countries that wish to trade with one another should concentrate on the production of items

each enjoys better factor endowment and economy of scale. And that when each country

concentrates on the line of trade where it has comparative advantage, the global economic

system not only achieves operational efficiency in resource allocation function but engenders

tremendous increases in volume of global outputs. The increased world outputs are thus made

available via international trade to global citizens everywhere, so the argument goes. This is why

tremendous research efforts have been made to investigate the nexus between trade and

economic growth. These efforts, over time, have yielded a body of literature that aligns with the

emphasis on the trade-led growth theory or hypothesis and others not in sympathy with it. The

protagonists of openness to international trade posit that trade openness has influences on

economic growth. The theory speculates that in the long haul, international trade can potentially

enhance economic growth by offering access to goods and services, enthronement of efficiency in

resource allocation and improvement of overall factor productivity via technology and

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Odo, C. O., Ozoemenam, K. N., & Edeh, K. N. (2021). International Trade, Globalization And Nigerian Economy . Archives of Business Research, 9(2). 22-32.

URL: http://dx.doi.org/10.14738/abr.92.9176. 28

advanced Nigerian economy or proven to be its undoing since it emerged on the global scene?

This query gives an outline of the issues that engage the mind in the following paragraphs.

The issue of the impact of globalization on African economies has been a subject of many debates.

In consequence, there have accumulated to our aid and delight, an array of impressive empirical

works that interrogate the concept and show how it has affected some sectors of the African

economy. Bagachwa et al, 1995 and UNIDO, 1996 in Aynagbo et al (2012), for instance, claimed

that trade liberalization has exacerbated the problems of domestic industries. They reported that

inexpensive commodities from technically advanced developing countries, particularly South- East Asia have invaded the African markets. They further argued that where liberalization has

fostered trade and created space for private sector and informal sector players, the field had been

chiefly dominated by ethnic minorities, such as Asians in East Africa and Whites in South Africa or

are all together taken over by their transnational corporations or their subsidiaries, whose

interest is purely pecuniary and not the development of host local economies ( Aynagbo et al,

2012). In fact they often encourage capital flights away from host economies back to their

countries of origin. Furthermore, the trade associations of Ghana, Nigeria and Zambia reported

dumping and unfair competitions by these countries (Aynagbo, et al 2012). It was further claimed

that the excessive competitive pressures mounted by these firms have led to the closure of some

local firms notably, soap, footwear and textiles firms ( Aynagbo, et al 2012). The textile industry

in Nigeria provides a worst case scenario of the ugly side of globalization in an economy. For

instance, the textile industry was held to contribute 48% of GDP between 1972 and 1982 (Eke,

2007). This industry that once accounted for 37% labour force has become moribund with 99%

mills closed down (Eke, 2007). The account above largely agrees with the submissions of Maiwala

and Renne (2013). The duo traced the chequered history of the textile industry in Nigeria.

According to them the first textile business in Nigeria was jointly owned by Northern Nigeria

officials and British textile firm, David Whitehead and sons; they built the first biggest textile in

Nigeria, Kaduna Textile Ltd ( KTL), which took off in 1957. This opened the floodgate for others

in the following decades such as the Arewa Textile, United Nigeria Textile Ltd ( UNTL) and

Norilex, among others. Growth in the sector continued unchecked up to 1970s and through the oil

boom years. According to them, by 2007, all three mills had ceased to exist.

The decline in fortune was created by both internal and external factors. Internal factors included

frequent changes in political leaderships leading to shift in industrial policy and failure to

maintain power infrastructure ( Maiwala and Renne, 2013). The external factor was traceable to

the implementation of Structural Adjustment Programme (SAP) in 1986. SAP deregulated the

currency and made imports of textile industry’s spare parts and modern weaving equipment

prohibitively expensive. Furthermore, changes in internal textile trade Agreements and

liberalization of Nigeria-Chinese trade offer of 2010 undermined efforts to revitalize the local

textile industry (Maiwala and Renne, 2013). And again, the fact that Nigeria is a signatory to the

liberalization policy of WTO led to the flooding of the local market with textile products from

China, India, Indonesia, Australia, and Holland with more competitive brands (Ibid). The

development has driven out local investors. And as at 2018, the textile import bill in Nigeria

stood at 9.7M US dollars (Anyanwu, 2020). Today the textile industry is comatose with the

attendant job losses and no thanks to globalization!

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Odo, C. O., Ozoemenam, K. N., & Edeh, K. N. (2021). International Trade, Globalization And Nigerian Economy . Archives of Business Research, 9(2). 22-32.

URL: http://dx.doi.org/10.14738/abr.92.9176. 30

mobility across international frontiers. Labour mobility generates its own benefits for individuals

and local economies. One way to assess the said benefit is to look at Diaspora Funds remittances.

Only recently, the Nigerian Government officially accorded a formal recognition to the enormous

potential that lay with diaspora residents. This was achieved through the formation Nigerian In

Diaspora Commission (NIDO)( Oyebola, 2020 ). Nigerians in Diaspora are seen as agents of

economic development achievable through skill and funds’ transfer. It is estimated that about 15

million Nigerians are in the Diaspora ( Oyebola, 2020 ). And a good number of these figure are

qualified professionals, which ply their trades in Europe, America, and other parts of the world.

This set of Nigerians have shown interest in the country’s welfare which is reflected in home

remittances and other humanitarian services. It is claimed that for the past three years, Nigerians

in Diaspora have brought in over 25b US dollars, yearly as home remittances through official and

non-official channels ( Oyebola, 2020). On balance, it seems that Kimatu (2012) has argued well

when he quipped that globalization is associated with risks and costs, and may have adverse

implications for international economic stability, notwithstanding its own potential benefits. And

for a developing nation like Nigeria, the risks and costs associated with globalization seem to

outweigh its potential benefits. This may have emerged because of the poorly managed macro- economic and weak technological environments that ill-predispose her in the face severe global

completion. This understanding should guide our policy choices as the nation seeks her sense of

mission in dealing with the debate generated by international trade and globalization.

SUMMARY AND CONCLUSIONS.

The paper has examined the concepts of international trade and globalization in relation to

Nigerian economic wellbeing. Literature accounts showed various prospects which the stubborn

and ubiquitous guests can bequeath an economy if certain minimum macroeconomic and

technological factors are guaranteed. The economy enjoys exclusive deficits in most of the major

factors. A fair categorization of the country would be an economic space characterized and

burdened with conditions of unstable macroeconomic management, infrastructural deficits, weak

technical base, inefficient financial system, corrupt and untoward political class, abysmal

industrial capacity utilization, and epileptic and inefficient power supply. Add to the mix,

increasing security risks from insurgency, Boko Haram, herders-farmers’ conflict and armed

banditry and you have a dire investment environment that not only stunt growth but erodes the

confidence of even an incurable optimistic-investor. The fact that her economy is almost

exclusively propped on a mono-product, oil crude, whose price is externally determined, puts

Nigeria in an uncomfortable position in the face of fierce competitive struggle created by

international trade and globalization. The industrial West with the advantage of advanced

technology and well diversified economy gets a head start over Africa in the contest.

The paper concludes that although Nigeria may have benefitted from the opportunities created

by international trade and globalization in the form of Direct Foreign Investments ( FDIs), via

portfolio investments, establishment of foreign banks and insurance firms and Diaspora Funds’

Remittances, the country may have paid so dearly in the form of retrenchment of workers in

companies bleeding from under capacity utilization, deficient consumer demand, unemployment

occasioned by firms that have had to fold up because consumers now prefer cheaper and better

brands offered by foreign firms operating in our backyard. Given the scenario above, it is suicidal

for Nigeria not to protect her domestic market while taking time to rejig her economic policy