DOMESTIC DEMAND-LED GROWTH AND HOUSEHOLD WELFARE IN NIGERIA: A COMPUTABLE GENERAL EQUILIBRIUM APPROACH

Abstract

Given that the policy target of restricting imports through tariffs system and diversifying the Nigerian economy from an import dependent is consistent with the policy options of the domestic demand-led growth strategy, this study investigates the impact of the domestic demand-led growth strategy on household welfare in Nigeria using a Computable General Equilibrium (CGE) model. The study formulated two scenarios; a protectionist trade policy and a trade liberalization policy, under which 70% increase in import tariffs and 15% increase in import tariffs respectively were simulated. The results of both simulations indicate a fall in income, savings and utility of rich and poor households. Similarly, the results show that both rich and poor households lose welfare with protectionist and liberal trade policies. However, the biggest loss in household and social welfare occurs with a 70% increase in import tariff. The study therefore recommends a less than 15% increase in import tariffs which would likely promote aggregate domestic demand and improve households’ welfare.