Poverty and employment impact of trade liberalization in Nigeria: empirical evidence and policy implications

This paper analyzes quarterly data which spans the period 1985 to 2010 to investigate the interrelationship between trade liberalisation, employment dynamics and the implications for poverty alleviation in Nigeria. An overview of macroeconomic trends and patterns during the period show that although the Nigerian economy experienced growth, it was accompanied by rapid rise in unemployment and poverty. The econometric analysis, estimated by systems equation model, related terms of trade, implicit producer price incentives, openness and macroeconomic policy outcomes on agricultural and industrial sector incomes per capita and total trade. The findings tended to show that the fortunes of these sectors deteriorated contrary to the assertion that a positive relationship exists between liberalization and poverty reduction via improved productivity of labor intensive smallholder farm and firms enterprises. While the apparent growth in total trade seemed to be buoyed by positive export supply shocks, deteriorating terms of trade and biased producer incentives structure penalized domestic manufactures and farming, thereby accentuating poverty. This adverse consequence is attributable to the adoption of import substitution industrialization strategy which encouraged the influx of foreign firms that are appendages of multinationals. In concluding, the paper calls for a shift in policy approach to economic development from the pervasive import substitution trade strategies which tended to displace labor to an export led strategy guided by the doctrine of factor endowments.