Manufacturing Sector Growth and Trade Policy in Nigeria

Abstract

Trade policy or openness to trade in an economy has the potential of engendering growth. Theoretically, trade openness can lead to improvements in industrial growth through access to better and cheaper technology, economies of scale and X-efficiency as a result of exposure to foreign competition. Has this actually happened? It is against this backdrop that the present study investigated the relationship between trade policy and manufacturing sector growth and through that assesses the impact of trade policy on manufacturing sector growth in Nigeria between 1970 and 2016. The Dynamic and Fully Modified Ordinary Least Squares (DOLS and FMOLS) techniques were used for the analysis. The empirical results indicated that on one hand, trade policy measured by degree of openness, exchange rate and broad money supply are positively related to manufacturing sector growth. Interest rate on the other hand, was found to have an inverse relationship with manufacturing sector growth and statistically significant in the in the DOLS framework. Since the empirical evidence revealed that trade policy captured by degree of openness is positively related to manufacturing sector growth and further clears any ambiguity of whether trade openness promotes growth in manufacturing in Nigeria. It is therefore recommended that policy direction in Nigeria should focus on more open policies as a long-term plan. The pursuit of outward-looking strategies should be strengthened depending on the comparative advantages in the liberalised sector and as a cushion against vulnerability impacts of the exports and imports market.