TRADE LIBERALIZATION, EXPORT DEPENDENCE AND DIVERSIFICATION OF EXPORTS IN NIGERIA

Abstract

Nigerian economy over the past few decades has adopted more liberal trade regimes and increased its dependence on trade in primary products without any significant progress in terms of diversifying their export base. Studies have shown that exports concentration on products, sectors, and markets with a limited scope to improve productivity and product quality may result in low growth. Absence of diversification increases vulnerability to external shocks which can impact negatively on exports earnings. This paper examines the impact of trade liberalization and export dependence on export diversification in Nigeria from 1980 to 2018. We employed short-run ECM technique to account for possible short-run disequilibrium in the relationship. We found, among other things, that trade liberalization has negative but insignificant impact on Export Diversification, Export Dependence has positive but insignificant impact on EXD in Nigeria. Foreign direct investment, gross national expenditure and financial development exact positive and significant impacts on export diversification in Nigeria.  Specifically, it found that a 1% point increase in FDI would increase EXD by approximately 30%, while a 1% increase in gross national expenditure would, in the short-run, significantly increase exchange rate diversification by 18%, other factors remaining constant. On this basis, the paper recommends that for exports of products to be diversified in Nigeria, the free trade zone policy needs to be strengthened by the government to help open up more operational areas such as the Calabar and Lagos free trade zones.