Impact of globalization on Nigeria economic growth

 

ABSTRACT

This study examined the impact of globalization on economic growth of Nigeria between 1981 -2015. The study employed time series data obtained from central bank of Nigeria. The methodology adopted in the study was multiple regression analysis using Vector Error Correction Mechanism (VECM) method, where Gross domestic product (GDP) as dependent variable was regressed against, globalization (GLO), external debt (EDT), foreign direct investment (FDI), and exchange rate (EXR) as the independent variables. The unit root test revealed that none of the variables were stationary at level while at first difference all the variables became stationary given their 5% level of significance. The cointegration test revealed that there is sustainable long run relationship between globalization and economic growth in Nigeria with at least three co-integrating vectors. Based on the findings, the study recommends that the Federal Government of Nigeria should revamp both local industries and agriculture through subsidies, concessions, uninterrupted power supply, technical assistance, improving security of lives and properties and the creation of enabling business operating environment.

Title: Impact of globalization on economic growth of Nigeria

INTRODUCTION

1.1 Background of the Study

With the advent of globalization and especially since the end of World War II, the World has become a much smaller place where interaction between different countries has led to a situation where a country’s economy and growth are not only in the hands of the ruling Government but is highly influenced by international organizations and international trade where international rules and legislations reign. Globalization started from the time of the Mercantilists who were popular from the sixteenth to the middle of the eighteenth century. They travel around the whole world looking for precious metals, in the process partitioned and colonized all parts of the world. Even in the Classical era, exchange of goods and services was promoted through the law of comparative advantage (Imeh, 2015).

This was made possible by the existence of comparative advantage, that is, a situation in which one country has a comparative cost advantage in the production of one commodity over another country. In addition, in the twentieth century, the Neo classicists also saw the possibility of trade and exchanges among countries. This was made possible because various countries were endowed with different proportions of factors of production (Noko, 2016). Therefore, countries were encouraged to produce and exports commodities in which they have abundant supply of factors of production. Hence, globalization dates back to human history. It was carried out in the form of trade, exchanges; inter-country movements, travels and migration.

Konyeaso (2016) noted that globalization or one global village which brought along with it the concept of “free-trade”, has greatly affected Nigeria economic growth over the years. Nigeria, which is the most populous nation on the African continent, is highly endowed with a lot of human and natural resources, which if adequately harnessed, can turn around not only its economy but the entire economy of Africa. Regrettably, this has not been possible because Nigeria has allowed herself to be used as a dumping ground for all sorts of imported goods from the foreign industrial countries and the Asian Tigers.

Consequently, this has had an unpleasant impact on capacity utilization of various sub-sectors of the Nigerian manufacturing sector, the creation of employment opportunities; the level of poverty in the country, the rate of social vices in the society and the outflow of the country’s foreign exchange at the detriment of the country in particular and Africa, at large. It has been found out that the impact of globalization on Nigeria and its contributions to the country’s economy, creation of job opportunities and the level of economic growth through the infusion of foreign capital and advanced technology is inevitable (Uwatt, 2004). Globalization is seen to have restricted Africa to merely a producer of raw materials and consumer of manufactured goods (Adesina, 2012), thereby eliminating its role in defining its priorities of national growth (Fatokun et al, 2004).

However, it is a thing of concern that even the crude oil which Nigeria produces, is refined abroad and imported back to the country to meet-up local consumption, because the country’s refineries have over the years been operating below capacity utilization. The economic crises in Nigeria are so obvious that made Academic Staff Union of Universities (ASUU) in 2002 to believe that the country’s economy has been taken over by the forces of globalization. Even though, Nigeria has all the requisite resources, both human and natural, to turn round its economy and by extension the entire economy of Africa, its over- reliance on the “global-economic-order” has turned it into a good source of development for both the developed economies of Europe and Americas and the emerging economic powerhouses of Asia at the expense of itself and the continent of Africa (Anyikwa, 2012). The situation becomes more aggravated due to Nigerians’ preferences for foreign goods (Fatokun et al, 2004).

Therefore, Nigerian Government can take all necessary measures to harness natural and human resources towards the development of the socio-infrastructure of the economy at large; investing on the growth of the industrial sector of the country to make the country less dependent on importation from the developed nation of the world; which has seen Nigeria as a dumping ground for their product. Essentially the information technology and knowledge management of the present socio-economic conditions of Nigeria suggest that the country has a long way to go in the global competition for economic growth and development. Nigerian economy is not only dependent on rent from oil but also over-enthusiastic in terms of importation of both industrial and consumer goods and refined petroleum products. With deteriorating infrastructures in the health, education, transportation, water supply, electricity and the problem of “brain drain” Nigeria’s future seems to be bleak in the global village (Akani, 2012).

In fact, some writers characterize globalization as the third phase of colonization, the second phase being neo- colonialism. On this view, Western countries are employing globalization to extend and strengthen the fundamentally exploitative relations established between colonial powers and the colonized over the past 400 years (Wokoma & Iheriohanma, 2001). Given this fact this research work aims at establishing the actual impact of globalization on Nigeria economy over the period under review.

1.2 Statement of Problem

Noko (2016) posits that globalization “has been used rather loosely to stand for a variety of things: the shrinking of the world into a global village, the awesome changes brought about or mandated by the revolution in information technology, the collapse of boundaries between different worlds, expanding connectivity of all forms of interaction.”

The difference in the socio-economic development across nations is attributed much to the development of the concept of globalization (Akani, 2012). Many economist and policy makers had argued that globalization; particularly the increase mobility of international financial capital has undermined the ability of countries to engage in independent macroeconomic policies whether fiscal or monetary. The implication of this is that government lack the ability to insulate their economies from the adverse effect of trade liberalization (Obadan, 2003). They further argued that trade imbalance is as the result of countries shifting their own unemployment problems elsewhere. Globalization reduces the ability of macroeconomic policy to stabilize the economy at an acceptable level of employment.

Globalization did not emerge in the world stage from the blues. It is nothing but part of the systematic movement orchestrated by the industrialized countries to emasculate weak economies of the world for their capricious enjoyment. The emergence of nation states in Europe and its attendant wars, the formation of international organizations, subjection of Africa’s to inhuman slavery, the colonization of the continent and the present epoch of unprecedented scientific revolution are just part of the trends to bring the globe under one currency.

In conclusion, globalization has become a threat to the poor rather than an opportunity for global action to eradicate poverty (Obadan, 2001). Arguing further, Obadan contends that globalization is the same notion used to justify slavery and colonization. It is usually anchored on the believed that the developed nations should be free to exercise their strength without moral or legal limitation that protects the weak. It is on this ground that this research investigate the impact of globalization on Nigeria economic growth.

    1. Research Questions

Based on the problems so identified, the research aims at addressing the following contending questions

1. Is there any long-run relationship between globalization and Nigeria economic growth?

  1. To what extent does globalization impact on the economic growth of Nigeria?
  2. Is there any observed causal relationship between globalization and Nigeria economic growth?

II. LITERATURE REVIEW

2.1 Conceptualization of Globalization

Globalization has become a catchphrase used in all conferences that borders on social development. Its indispensability to socio-political and economic development has made it imperative for a thorough examination of the concept. According to Uwandu, Akpan, & Akpan (2013), globalization primarily has two principal meanings, as a phenomenon and as a theory of economic development. Within the context of a phenomenon, globalization translates to a greater interdependence among different regions and countries in the world in terms of finance, trade and communication. As a theory of economic development, globalization assumes that a greater level of integration is taking place among different regions of the world and that this integration is having an important impact on economic growth and social indicators (Uwandu et al, 2013).

It is not surprising that ‘the rapid growth of internet and associated www… is the latest expression of this development. In 1990, fewer than one million users were connected to the internet. By 1995, the figure had risen to 50 million. In 2000, it grew to between 580 to 655 million. By the year 2005, forecasts suggest that the internet may have over 1.12 billion users or about 18% of world’s population. (Alimi & Atanda, 2011). Esko Toyo stated that globalization is a call for lifting restrictions on private imperialist direct investment. It is an attempt to exploit the fact that the world is chronically indebted to the imperialist already. They have to swallow the hook of foreign direct investment (cited in Akani, 2004). Globalization did not emerge in the world stage from the blues. It is nothing but part of the systematic movement orchestrated by the industrialized countries to emasculate weak economies of the world for their capricious enjoyment. The emergence of nation states in Europe and its attendant wars, the formation of international organizations, subjection of Africa to inhuman slavery, the colonization of the continent and the present epoch of unprecedented scientific revolution are just part of the trends to bring the globe under one hegemony. All through these stages, there has been an unbridled effort to internationalize capitalism for maximum profit. The present epoch is distinguished from previous stages because of its facilitation of fast movement of goods and services, and business transactions electronically carried out no matter the distance. This process has resulted to what Renato Ruggiero, Director-General of the World Health Organization (WHO) described as a ‘borderless economy. Globalization has led to ‘the intensification of the world wide social relations which link distant localities in such a way that local happenings are shaped by events occurring many miles away and vice versa (Derefaka, 2004). The essential ingredients of globalization is anchored on,

1. Movement of people, goods and services across the world

2. Private sector development,

3. Belief on the efficacy of the market,

4. Interdependence of economic transaction.

The belief on the effectiveness of the market presupposes an adherence to economic fundamentalism, the Washington consensus ‘ or a form of dogmatism in the extreme in which there is a strong belief that markets can handle any and everything’

2.2 Theoretical Literature

External Trade liberalization Theory

Why do nations trade with each other? Is trade a good thing? The theory of external trade provides answers. The answers are both convincing and elegant, hence the vast majority of economists agree about the desirability of liberal trade leading to globalized world. But the argument is also subtle and often misunderstood or distorted.

Thus a large proportion of the general population tends to oppose liberal trade from confusion. Uwandu et al (2013). “Buy low, sell high” logic leads economists to comparative advantage theory. Comparative advantage theory means the comparison of relative price differences between nations to explain the pattern of trade. For example, compare the relative price of wheat in terms of cheese at home to the same relative price in the foreign economy in a hypothetical equilibrium with no trade (autarky) or with restricted trade. The country with the lower relative price of wheat is said to have a comparative advantage in wheat while other country has, symmetrically, a comparative advantage in cheese. Buy low, sell high logic predicts that a country will export the good in which it has a comparative advantage.

Notice that the focus on relative prices tends to cancel out forces (exchange rate manipulations, environment or labour standards) which cause national differences in levels of non-traded factor (or goods) prices. Note also that buy this reasoning a country must have a comparative advantage in some good. Prices of non-traded factors of production adjust in general equilibrium so that each country ends up in trade equilibrium with a competitive or absolute cost advantage in good in which it has a comparative advantage.

Partial equilibrium thinking takes factor prices as given and does not impose the external budget constraint that requires exports to pay for imports. Partial equilibrium reasoning leads to misunderstandings explored below as the absolute advantage fallacy. Comparative advantage differences between nations are explained by exogeneous differences in national characteristics. Labour differs in its productivity internationally and different goods have different labour requirements, so comparative labour productivity advantage was Ricardo’s predictor patterns. The factor proportion theory of Hecher-Orlin added relative factor endowment differences to the exogenous explanation of comparative advantage. The theory states that more capital abundant countries varies with the relative have higher labour productivity, but advantage gained relative to less abundant countries with relative capital intensity of the good’s technology. Combining capital-resource and labour endowment differences account for reasons for globalized economy of the world (Akani, 2004).

Romar Endogenous Growth Theory

Romar (1990), develop an alternative theory to the exogenous growth theory which is now commonly known as “endogenous growth models” By broadening the concept of capital to include human capital, the new endogenous growth model argues that the law of diminishing returns to scale phenomenon may not be true as is the case for developed economies. In simple terms, what this means is that if the firm which invests in capital also employs educated and skilled workers who are also healthy, then not only will the labour be productive but it will also be able to use the capital and technology more efficiently. This will lead to Hicks neutral‖ shift in the production function and thus there can be increasing rather than decreasing returns to investments.

The Romar endogenous growth theory was developed as a reaction to the flaws of the neoclassical (exogenous) growth theory. Romar endogenous growth theory was first presented in 1986 in which he takes knowledge as an input in the production function. The theory aimed at explaining the long run growth by endogenizing productivity growth or technical progress.

The major assumptions of the theory are:

1. Increasing returns to scale because of positive externalities

2. Human capital (knowledge, skills and training of individuals) and the production of new technologies are essential for long run growth.

3. Private investment in Research and Development is the most important source of technological progress

4. Knowledge or technical advances are non-rival good.

In the theory, the savings rate affects the long run economic growth because in this framework, a higher level of savings and capital formation allows for greater investment in human capital and Research and development. The model predicts that the economy can grow forever as long as it does not run out of new ideas or technological advancement.

Just like the exogenous growth theory, the endogenous growth theory professes convergence of nations by diffusion of technology. That is, a situation where poor countries manage to catch up with the richer countries by gradual imitation of technology by poorer countries.

Endogenous growth theory holds that economic growth is primarily the result of endogenous and not external/exogenous forces. Endogenous growth theory holds that investment in human capital, innovation, and knowledge are significant contributors to economic growth. The theory also focuses on positive externalities and spillover effects of a knowledge-based economy which will lead to economic development. It is also a long-run economic growth at a rate determined by forces that are internal to the economic system, particularly those forces governing the opportunities and incentives to create technological knowledge. In the long run the rate of economic growth, as measured by the growth rate of output per person, depends on the growth rate of total factor productivity (TFP), which is determined in turn by the rate of technological progress (Adesina, 2012).

The AK model, which is the simplest endogenous model, gives a constant-saving-rate of endogenous growth. It assumes a constant, exogenous, saving rate. It models technological progress with a single parameter (A). It uses the assumption that the production function does not exhibit diminishing returns to scale to lead to endogenous growth. Various rationales for this assumption have been given, such as positive spillovers from capital investment to the economy as a whole or improvements in technology leading to further improvements (i.e. learning-by-doing

The model works on the property of absence of diminishing returns to capital. The simplest form of production function with diminishing return is:

Y = AK\,

Where;

 A\, , is a positive constant that reflects the level of the technology.

 K \, capital (broad sense to include human capital)

y = AK\, , output per capita and the average and marginal product are constant.

This is a Cobb-Douglas function where Y represents the total production in an economy. A represents multifactor productivity (often generalized as technology), K is capital and L is labour.

An important relation in the macro-production function:

Y=AK^aL^{1-a}\ \Leftrightarrow y=Ak^a \,

which is the macro-production function divided by L to give total production per capita y and the capital intensity ‘k.

Savings function

I=sY\,

This function depicts savings, I as a portion s of the total production Y.

Change in capital

\Delta K=sY-Kd \,

The d is depreciation.

Change in workforce

L_{t+1}=L_t(1+n)\,

‘n’ is the rate of growth. e.g. n=0.02 would mean L_{t+1}=1.02L_t\, or a 2% rise in L_t\,

Several theories have offered valuable insight on why developing countries attract international capital flows. Solow (1956) cited in Zhang and Markunsen (1999) saw the crucial driving force of economic growth in accumulation of stock of capital. He believes that growth develops on the basis of investment and that the more capital is available and invested in an economy, the higher its recorded growth rate.

Technological progress (advancement) implies the development of new ideas which resemble public goods because they are non-rival. When the new ideas are added as factors of production the returns to scale tend to be increasing. In this model new technology is the ultimate determinant for long run growth and it is itself determined by investment into in research technology.

Therefore, Romar takes investment in research technology as endogenous factor in terms of the acquisition of new knowledge by rational profit maximization firms. Alejandro (2010) explained that DFI plays an extra ordinary and growing role in global business and Economics. It can provide a firm with new markets and marketing channels, cheaper production facilities access to new technology products, skills and financing for a host country or the foreign firms which investment, it can provide a source of new technologies, capital processes products, organization technologies and management skills and other positive externalities and spillover that can provide a strong impetus to regional economic growth. Blejer and Khan (1984), in their studies of foreign capital inflow to developing countries, indicated that changes in output are the most important determinants of private foreign capital inflow.

Therefore, though FDI could produce a significant effect on output growth through speeding up capital formation process, the effect tends to diminish in the long run because of the principle of diminishing return.

As opposed to the limited contribution that the neoclassical theory accredits to FDI, the endogenous growth literature points out that FDI can not only contribute to economic growth through capital formation and technology transfers (Adesina, 2012) but also do so through the augmentation of the level of knowledge via labour training and skill acquisition (Ogbonna et al, 2013)

Vaknin (2007) explained that, several studies indicate that domestic investment projects have more beneficial trickle-down effects on local economies. Be that as it may, close to two-thirds of DFI is among the rich countries and in the form of mergers and acquisitions. Direct Foreign Investment (DFI) constitutes a mere 2% of global Gross Domestic Product. DFI does not automatically translate to net foreign exchange inflows. During the last decades, the relation between FDI and economic growth has been extensively discussed in the economic literature. Theories and existing literature provide conflicting results concerning this relationship. Some scholars argue that foreign direct investment could stimulate technological change through the adoption of foreign technology and know-how and technological spillovers, thus boosting host country economies.

    1. Empirical Literature

As the global economy shifts towards more knowledge-based sectors (e.g. the manufacture of ICT devices, pharmaceuticals, telecommunications and other ICT-based services, R&D), skills and knowledge becomes a central issue for policy-makers and practitioners engaged in economic development both at the national and regional level (OECD, 1996). Yet, the impact of globalization on changing national and regional economies remains less than thoroughly explained and analysed. Empirical literature abounds over the influence of globalization on the economic growth and development of developing nations most especially Nigeria economy. Hence, this research work will review a number of such works in this section of the work.

Kay (1997) studied the impact of globalisation on the peasant agriculture in Chile. He observed that globalisation had produced a negative effect on the peasant farmers in the countryside. This connotes that globalisation has created occupational duality in Chilean agriculture. He however concluded that state intervention in the context of globalisation to re-position the state to sectorally benefit from the integration of the economy is of importance.

Noko (2016) examined the impact of globalization on poverty alleviation in Nigeria. The study employ ordinary least square (OLS) method of regression technique, the findings revealed that despite reforms improved global economic conditions, Nigeria has not put in place policies necessary to raise living standards by improving export schemes in traditional markets and encouraging rapid diversification.

Yang (2003) examined the impact of globalisation on higher education development. He contended that globalisation is in the main economic, and pointed out that global exchanges in the economic, cultural and educational areas are increasingly tending unequal. Yang thus questioned the conventional acceptance in all quarters that globalisation is a positive force for higher education and society as a whole. Thus, if globalisation is not handled with utmost care, it could have a destabilising effect on higher education in an economy.

Scrinivasulu (1997) examined the impact of liberalisation on ‘Beedi ‘workers and observed that liberalisation has the tendency to aid the production of cheap mini cigarettes by some manufacturers; thus posing some difficulties to the existing firms’ sales and their workers. This is capable of diluting the workers’ union by the so called beedi-barons against the mini-cigarette manufacturers. He concluded that liberalisation may, of course, polarise the workers’ movement in an economy. His position accentuates the disintegration potency of globalisation on labour union. As observed by Aluko (2004), recent statistics showed that the third world poor countries representing eighty per cent of the total world population accounted for twenty one per cent of the world income in 2000. About eighty five per cent of international capital investment was made in Europe, North America and Japan (called the Triad) in the last decade compared with similar investments in 1980. However, such investments flowing to developing countries which were 55 per cent of the world’s direct and portfolio capital investments in the 1980s had significantly fallen to 35 per cent in 1980 with the advent of globalisation. His position is thus that globalisation is rather destructive to the developing countries.

Aluko (2004) observed further that of the world’s gross domestic product (GDP), which was about 25 trillion US dollars in 2000, only about 5 trillion US dollars was produced in the developing countries where about 85 per cent of the world population reside. About 35 per cent of the population of the poorest countries received less than one Us dollar per day in 2000. Among the developed countries themselves, welfare dualism could be observed. For instance, in Western Europe, with average annual per capita income of 22,000 dollars, it was estimated that above 16 million people lived below the official poverty level with 3.5 million homeless population and 8 million unemployed. Such a scenario is even obvious in USA where despite the increase in GDP by about 35 per cent, the real wages of the average low earners fell significantly by 15 per cent, despite the rise in the real earnings by about 20 per cent of the corporate companies.

Uwatt (2004) was of the view that globalisation effects were mixed. He however showed that globalisation had unleashed vitality which had moved the world economy to arena of development by way of new technologies, greater availability of, and flow of information worldwide which has benefitted the world in the areas of education, health, and social development. Uwatt (2004) however recommended that there was the need to urgently manage globalisation better so as minimise its negative effects and diffuse the opportunities and benefits resulting from it. The conclusion emanating from the study conducted by Obadan (2003) on globalisation and economic management of Africa, using descriptive analysis, appears to support the position of Uwatt (2004). Obadan showed that the phenomenon of globalisation had opened a greater potential for economic growth and unrivalled opportunities for developing economies to increase their living standards. Obadan noted that despite the opportunities that globalisation stands to offer developing countries, Africa remains very inelastic to the developments in other parts of the world. He therefore concluded that since Africa could not remain in limbo, she needed to meet the world challenges through implementing appropriate strategies and policies in order to maximise the benefits emanating from globalisation.

In a similar study, based on stylised facts and econometric methods, Uwatts (2004), observed that globalisation could potentially benefit the African economy. He remarked that at present, it appeared that globalisation was not benefitting the developing economies. He therefore concluded that the potential benefits derivable by African countries depended largely on how fast they could be integrated into the rest of the world and their preparedness to meet the global financial shocks emanating from globalisation.

Olaniyan and Obadara (2006) discussed the challenges and opportunities of globalization through application of information and communication technologies to Nigerian Educational system. It is concluded that schools and universities should integrate new technologies into their teaching methods. Teachers and students also should learn how to use and integrate the new technologies and they should be encouraged to develop curiosity in them. Ibrahim (2005) studied the issues surrounding the paradox of globalization and provide a framework for underdeveloped countries to circumvent the overbearing effect of globalization in their efforts towards industrialization, economic growth and development. In his study, he discovered that trade liberalization being the cardinal instrument of globalization ensures that industrialized countries have access to world markets, which enhances further industrialization of industrialized countries while incapacitating the industrialization process of the underdeveloped economies.

Yusuf (2003) concluded in his study of the influence of globalization on the Nigerian economy that if necessary measures are not put in place Nigeria may be excluded in this process and globalization of poverty rather than prosperity will occur. Emmanuel and Agatha (2007) examined the impact of globalization on economic development of Nigeria in the last two decades. They discovered that the main driving forces of this process are technology, policy and competition and it subordinates domestic economies to global market conditions and practices. They also said developed nations are the beneficiaries of globalization as their share of world trade and finance has been expanded at the expense of developing countries.

In a more recent study by Wokoma and Iheriohanma (2010) examined how the phenomenon of globalization affects or poses a challenge to organizations operating in the Third World countries, especially Nigeria. As a result of some skewed and embarrassing features discovered from their study such as inadequate skilled manpower, lack of critical social, legal and economic structures, etc, and the challenging forces and propellants of globalization such as technological innovations, economic liberalization, etc, third World economies have not gained the advantage of global world economies.

The findings of the study by Akinboyo (2003) based on Nigeria appeared to support the need for preparedness on the part of African countries to meet the challenges emanating from globalisation when he noted that for Nigerian financial sector to optimally benefit from globalisation resulting from information technology, the Nigerian government should necessarily put in place appropriate infrastructure.

The above view of Akinboyo was supported by Olayiwola and Ogundiran (2003). They saw the need for the Nigerian government to be infrastructural conscious to derive maximum benefits from globalization. In support of the foreign direct investment coming from globalisation into the less developing countries (LDCs), it has been argued that the operations of transnational corporations coming to LDCs through this process are to a large extent meant to promote development and integrate developing countries into the network of global production and enhancement of efficiency and growth (Julius, 1994; Britian, 1995). Despite this potential benefits, some authors have argued that a lion share of FDI goes to the developed countries, suggesting an asymmetric benefits that largely favours the developed world at the expense of LDCs (Dickens, 1992). As pointed out by Hirst and Thompson (1992), seventy-five per cent of the group of five (G5) countries received 75 per cent of the world FDI, but in 1983 and 1989, only 19, 7 per cent of the world FDI went to the developing countries. Hirst and Thompson (1992) however noted that although the share of the LDCs increased to 29.2 between 1990 and 1994, the absolute size had not been encouraging thesismind

Globalization and Nigeria’s Foreign Policy

Globalization has become a commonly used word world-wide. It is no longer a new concept or phenomenon in the academic and business world as social scientists, journalists, business analysts, management theorists, writers and commentators generally have at various times used and will continue to use the word in particular contexts for declared and undeclared purposes, with more or less effectiveness in their attempt to explain or interpret issues in this changing and complex world. Globalization constitutes a mega trend in Nigerian political economy and has assumed a new phase in the country’s international relations. Given the emergent socio-political and economic transformation as well as the technological advancement in communication, information, transportation etc, the process seems to be irreversible. Various institutional actors that is, Ministry of Foreign Affairs, Nigerian Institute of International Affairs, etc, have indeed consistently intensified efforts towards engaging in socio- cultural relations with other global actors to develop her domestic scene.

Thus, Nigeria today belongs to the ‘global village’, a new phase that has sharpened the development of her foreign policy; and inter-connectedness of political, economic, social and technological forces that permeate contemporary global system. Nigeria has made giant strides toward global economic integration through privatization. It is also liberalizing capital markets with increasing scope of mergers and acquisitions especially in the financial sector. The country has continued to relax capital controls which posed a significant obstacle to foreign direct investment (FDI). More importantly, Nigeria is an active participant in the New Economic Partnership for African Development (NEPAD) – a development plan which seeks to liberate Africa from underdevelopment, poverty, warm and corruption (Soludo, 2007).

Globalization and Nigeria Industrial Policy

Industrial Policy can be defined as a systematic government involvement, through specifically designed policies in industrial affairs, arising from the inadequacy of macroeconomic policies in regulating the growth of industry. Instruments of industrial policy include subsidies, tax incentives, export promotion, government procurement, and import restrictions (Obadan, 2001; Madungu, 1999). However, other policies such as direct government investment or nationalization of foreign investment and macroeconomic policies such as exchange rate, monetary policy, trade policies, may form part of a country’s industrial policy. The main thrust of trade policy is therefore the enhancement of competitiveness of domestic industries, with a view to, inter alia, stimulating local value-added and promoting a diversified export base. Trade policy also seeks to create an environment that is conducive to increased capital inflows, transfers and adoption of appropriate technologies (Omoke, 2006). In the African continent, there has been a poor performance of African manufacturing industry as documented in the business literature (Lall and Wangwe, 1998). The structure of manufacturing is backward and dominated by processing of natural resources and by simple consumer goods industries. Import liberalization (with competition largely from other developing countries) is devastating the exposed industries and there is little sign of resources flowing into new, export-oriented manufacturing activities. Technological efficiency and dynamism remain low (Wacziarg and Welch, 2008). Governments have intervened to promote industry but results were not encouraging (Soludo, 1997, 1998; Lall and Teubal, 1998).

Efforts were made to use trade policy to promote manufactured exports and enhance the linkages in the domestic economy, to increase and stabilize export revenue, and scale down the country’s reliance on the oil sector (Olaniyi, 2005). Trade policies were accordingly directed at discouraging dumping; supporting import substitution; stemming adverse movements in the balance of payments; conserving foreign exchange; and generating government revenue.

Impact of Globalization on Nigeria Economy

The Impact of Globalization on Economic Growth in Nigeria Before independence on 1st October 1960, the British had already integrated Nigeria into the world capitalist system as exporters of raw materials and importers of finished and capital goods. After independence, this trend continued Ogbonna et al, 2013). The country had political independence but economically she had to depend on Britain and other industrialized countries for technology, modernization, development strategies etc. The industrialized countries needed markets for their exports while Nigeria needed to import consumables, capital goods and access to technology. Between 1981 and 1985, the Nigerian economy experienced serious depression which was caused by the glut in the world oil market and which led to a sharp decline in Nigeria’s oil export earning, (Ime, 2015). With the decline in foreign exchange earnings, importation of raw materials and other inputs for the industrial sector had to be curtailed. Balance of payments and the nation’s external reserves came under heavy pressures. Government policy was mainly focused on the objective of economic stabilization (CBN, 2010).

Hence, Nigeria adopted various development strategies over time. Between the early 1960s and the mid-1980, import substitution industrialization strategy reigned in Nigeria. During the period, macro-economic policies particularly trade policy was designed to make the country inward-looking. Other domestic policies were also designed to fall in line with and hence, promote this industrialization strategy (Igudia, 2003). The emergence of macroeconomic crises in the mid-1980s led to a reconsideration of the effectiveness of import-substitution industrialization as a strategy to promote growth and development in Nigeria. It was against the above background that Structural Adjustment Programme (SAP) was adopted in Nigeria in 1986 (Noko, 2016). The SAP policy package explicitly recognized outward-oriented as a more effective growth enhancing strategy for Nigeria. Thus, the SAP policy package includes trade liberalization, market-orientation exchange rate regime, privatization and commercialization. Emphases were on diversification of the productive and export base of the economy from oil to non-oil products.

Thus, various incentives were granted to encourage non-oil export production, especially manufacturing activities. Some agencies were set up to promote export and investment. It should be noted that the macro-economic objective of SAP has not been achieved in Nigeria. Thus, both the productive and export base of the economy were not diversified as oil still remains the engine of growth while the structure of output remains dominated by primary products. The external balance continued to remain at disarray despite the devaluation of the domestic currency. The SAP appeared to have intensified speculative and trading activities rather than production (Ime, 2015). The proliferation of Merchant Banks, de-regulation of interest rates, privatization of the economy and the new industrial policy did not bring in the needed foreign direct investment.

From the foregoing, it is obvious that the Nigerian Economy was integrated into the global economy before independence. But unfortunately the benefit of globalization does not trickle down to the Nigerian economy as proposed by its proponents (Noko, 2016). Several factors have accounted for this unimpressive performance. First, is the nature of the product in which Nigeria has comparative advantage over. This is largely determined by the geographical characteristics of the country in terms of its relative factor endowments. Nigeria has a comparative advantage in the production of labour intensive primary agricultural products which has less competitive demand in the developed countries. Although, Nigeria is a large exporter of crude oil, authors like Noko (2016) argued that the country reliance on oil export has cost the nation diversification of its economy.

Moreover, the more developed countries are erecting a tariff barrier against the entry of primary agricultural products from developing countries into their country. Furthermore, Nigeria do not have the technology and capital needed in the production of manufactured goods that could be exported abroad. It is only trade in oil that favours Nigeria where the more developed countries derived more benefits because without oil their economy can cripple Aluko (2004). It is interesting to note that globalization benefit countries with advance technology, improved manufacturing sector than developing countries that commodity product like oil, agriculture export dependents. The same reason propel Akinlo (2004) to argued that globalization is another means adopted by the industrialized economy to colonize the developing countries particularly the African continents. As such if Nigeria must reap the benefit of globalization it need to invest in infrastructure building, promotion of the manufacturing sector and increase expenditure on education that is capable of increasing Nigerian skills and capabilities to be competitive in the global economy.

III. RESEARCH METHODOLOGY

    1. Model Specification

This research work was anchored on the model employed by Noko (2016), in evaluating the effect of globalization on economic development of Nigeria from 1980-2010. The variables considered were: globalization (GLO) a measure of trade openness in the country i.e. sum of import and export, foreign direct investment (FDI), external debt (EDT) burden effect on growth and exchange rate (EXR) of naira vis-à-vis US dollar as an international transaction exchange price. The adapted model is expressed in a multiple regression and functional and mathematical form as follows:

GDP = (GLO, FDI, EDT, EXR, FPI) ………………………………………………….1

GDP = bo + b1 log (GLO) + b2 log (FDI) + b3 log EDT + b4log EXR + Ut …………………2

Where;

GDP = log of Gross Domestic Product

GLO = trade openness or globalization measure as the ratio of sum of exports and imports to GDP

FDI = foreign direct investment emanating from financial integration channel.

EDT = external debt

EXR = exchange rate

Where

bo = constant term/parameter intercept

b1, b2, b3, b4 and b5 = coefficients of the parameters estimates.

Ut = Error Term

    1. Estimation Procedure

At this level of research using time series data; the researcher estimates the model with Ordinary Least Square (OLS) method. This method is preferred to others as it is best linear unbiased estimator, minimum variance, zero mean value of the random terms, etc (Gujarati, 2004)

In the preliminary test, the following tests shall be conducted. They include:

  • Unit Root Test
  • Co-integration Test
  • Error Mechanism Test (ECM)
  • Granger causality test
  • T- Test among others.

IV. Analysis

4.1 Presentation of Result

The attempt to study the impact of globalization on Nigerian economic growth led the researcher to subject the data collected to Unit Root, Co integration, and vector Error Correction tests. The variables considered in this research work are: Gross Domestic Product (GDP) at current basic prices (dependent variable) and the independent variables include: Globalization (GLO), external debt (EDT), foreign direct investment (FDI), and exchange rate (EXR). The empirical results are presented below:

4.1 Unit Root Test

In other to test for the presence or absence of unit root in the data used for the empirical analysis, Augmented Dickey-Fuller (ADF) test was employed and the test result is as presented below:

TABLE 1: UNIT ROOT

Table1: Augmented Dickey Fuller Unit Root Test Trend and Intercept

Variables

Level

1st difference

Critical value (5%)

Order of

integration

Remark

D(GDP)

 2.136626

-5.136626

-2.9604

I(1)

Stationary

D(GLO)

1.52552

– 3.79377

-2.9604

I(1)

Stationary

D(FDI)

1.0040

-4.842082

-2.9604

I(1)

Stationary

D(EDT)

-2.50100

-5.501657

-2.9604

I(1)

Stationary

D(EXR)

-1.16123

-3.983815

-2.9604

I(1)

Stationary

Source: Own Computation, 2014 (See Appendix)

From the table 1 above, the result revealed that none of the variables were stationary at level while at first difference all the variables become stationary given the 5% level of significance, since the absolute value of the calculated ADF exceeds the absolute value of 5% and 1% critical value of the ADF. Hence, since all the variables are not stationary at the level, co-integration analysis is justified. We there proceed to conduct the long run relationship of the variables and their short term speed of adjustment to equilibrium.

4.2 Tests for Cointegration

This test is used to test for the long run relationship between the variables; it was carried out using the augmented eagle – Granger test on the residuals under the following hypothesis:

H0 : δ = 0 (Not- cointegrated)

H1 : δ ≠ 0 (cointegrated)

Decision Rule:

Reject H0 if t*.Adf (Trace Statistic) > t-Adf (CV), accept if otherwise

TABLE 2

Series: GDP GLO EDT FDI EXR 

   

Lags interval (in first differences): 1 to 1

 
         

Unrestricted Cointegration Rank Test (Trace)

 
         
         
 

Trace

0.05

 

Hypothesized

Eigenvalue

Statistic

Critical Value

Prob.**

No. of CE(s)

         
         

 0.925134

 155.1392

 69.81889

 0.0000

None *

 0.773282

 85.15380

 47.85613

 0.0000

At most 1 *

 0.712912

 45.08444

 29.79707

 0.0004

At most 2 *

 0.328962

 11.38930

 15.49471

 0.1887

At most 3

 0.022636

 0.618195

 3.841466

 0.4317

At most 4

         
         

 Trace test indicates 3 cointegrating eqn(s) at the 0.05 level

 * denotes rejection of the hypothesis at the 0.05 level

 **MacKinnon-Haug-Michelis (1999) p-values

 

Source: Own Computation, 2014 (See Appendix)

From table 2 above it can be seen that the trace statistic (t*) is greater than the t-adf i.e. the critical value at 5% or since the Eigen value are greater than 5% level of significance, we reject Ho and conclude that the variable are cointegrated. Put differently, there is a sustainable long-run relationship (i.e. steady-stated path) between gross domestic product (GDP), globalization (GLO), foreign direct investment (FDI), external debt (EDT) and exchange rate (EXR). The normalized co-integrating coefficients for one co-integrating equation given by the long-run relationship is

Error Correction Mechanism:

The existence of a long-run co-integrating equilibrium provides for short-term fluctuations. In order to strengthen out or absolve these fluctuations, an attempt was made to apply the Error Correction Mechanism (ECM). As noted, the ECM is meant to tie the short-run dynamics of the co-integrating equations to their long-run static dispositions. Table 4 below shows the error correction mechanism result.


TABLE 4: PERSIMONIOUS ERROR CORRECTION MECHANISM RESULT

Sample (adjusted): 1983 2015

     

Included observations: 28 after adjustments

   
           
           

Variable

Coefficient

Std. Error

t-Statistic

Prob.  

Remark

           
           

C

506227.3

183932.3

2.752248

0.0119

Reject

D(GDP(-1))

0.897239

0.119359

7.517146

0.0000

Reject

D(GLO(-1))

0.483305

0.178842

2.702408

0.0133

Reject

D(FDI(-1))

4.690164

6.820850

0.687622

0.4992

Accept

D(EDT(-1))

0.456072

0.218170

2.090440

0.0489

Reject

D(EXR(-1))

-17091.49

13658.57

-1.251338

0.2246

Accept

ECM(-1)

-1.259002

0.120878

-10.41547

0.0000

Reject

           

Source: Own Computation (See Appendix)

R2 =0.9079 D-W = 1.69

F* = 34

From the result the coefficient of error correction term is -1.259002. This shows that 125% of the errors in the short run are corrected each year. Thus, the coefficient captures the speed for adjustment at which the short-run of GDP ties with its long-run. The result is significant since the coefficient of multiple (0.9079) determination is greater than zero and the error correction variable (ECM), is negative which shows that there is feedback from the previous year’s disequilibrium.

T-test: A mere observation of the individual parameters reveals that foreign direct investment and exchange rate are not significant since their p-value is greater than 5% level of significance, on the other hand globalization and external debt is significant given the 5% level of significance and their respective P-value.

F-test: Furthermore, the joint influence of the explanatory variables on the dependent variable is statistically significant. This is also confirmed by the F-probability which is statistically zero i.e. the P-value of F-statistics is less than 5%

Durbin-Watson Test: At the same time the Durbin-Watson is 1.69 approximately. Using 5% level of significance, 4 explanatory variables and 30 observations, the tabulated Durbin-Watson statistics for lower and upper limit are 1.21 and 1.62, since the calculated Durbin-Watson is greater than upper limit of Durbin-Watson but less than 4-dl we conclude that there is no evidence of first order serial correlation.

4.3 Test of Hypothesis

Hypothesis I: The main objective of this study was to examine the impact of globalization on Nigeria economic growth. With respect to this, the null hypothesis and alternative hypothesis are stated as fellows;

H0 Globalization has not impacted significantly on Nigeria economic growth within sample period.

H1 Globalization has impacted significantly on Nigeria economic growth within sample period

F- Test: Is employed in testing the hypothesis. This test will help to capture the joint influence of the explanatory variables on the dependent variable.

Decision Rule;

If F-cal. > F-tab reject the null hypothesis or if the P-value is less than 5% level of significance, otherwise accept the null hypothesis. Using 5% level of significance at 3 and 26 degree of freedom, the tabulated F-value is 2.99. Since, the calculated F-value (24) is greater than the tabulated F-value at 5% level of significance; we reject the null hypothesis and conclude that globalization has as a significant impact on Nigeria economy.

Hypothesis II: The second objective was to ascertain the causal relationship that exists between Globalization and Nigeria economic growth. The null hypothesis and alternative hypothesis was stated below:

H0 There exist no significant causal relationship between globalization and economic growth in Nigeria

H1 There exist significant causal relationship between globalization and economic growth in Nigeria.

Pairwise Granger causality test was conducted to determine the nature of causality between globalization and gross domestic product in Nigeria.

Decision Rule: Reject the null Hypothesis if P-value is less than 5% level of significance or if the F-cal is greater than F-tab. otherwise accept the hypothesis of no causality.

As discussed earlier there was uni-directional relationship between economic growth and globalization in Nigeria. The result reveals that there was high causal relationship between globalization and economic growth as revealed by their respective p-value.

Hypothesis III: The third objective of study is to determine the long-run relationship globalization and economic growth in Nigeria. The null hypothesis and alternative hypothesis has been stated below;

H0 There exist no significant long-run relationship between globalization and economic growth in Nigeria

H1 There exist significant long-run relationship between globalization and economic growth in Nigeria.

Decision Rule:

Reject H0 if t*.Adf (LR) > t-Adf (CV), accept if otherwise

Granger causality test was used to verify this hypothesis, the result reveal that all the variable has long run relationship, or steady stated path.

4.4 Implication of the Result

The a priori expectation of the openness variable is expected to be positive, which shows that the higher the level of trade, the better is the economic growth. The regression result shows that the coefficient is positive which a welcomed development was even though it has a negative relationship with economic growth in the long-run as revealed by the co-integration test. This variable could take on any sign. This depends on the level of trade between the nation in question and other nations. A high level of trade will result in positive growth, which will give a positive relationship between trade and economic growth, i.e. a positively signed coefficient. But in the case of Nigeria, the relationship is negative in the long-run which shows that the volume of her trade with other nations is still very low. The FDI (Foreign Direct Investment) and external debt (EDT) are positively related to economic growth. This positive relationship is necessary, in recent years Nigeria have witnessed a growing enthusiasm for FDI especially during last regime.

While FDI, either through purchase or the establishment of new production facilities (i.e. green field” investment), may contribute to capital formation and to export earnings, its wider contribution to technological change and growth of the economy may be limited if, for example, the FDI is virtually an enclave activity and not well integrated into the rest of the economy. The result shows that the exchange rate is negative; this shows that these variables are negatively related to the growth of the economy. The sign of the exchange rate indicator could be negative or positive for economic growth to take place. This has to do mainly with the state of the productive base of the economy, and their positions in the international market. If a firm or an economy is already in the international market, the firm will benefit from the upward movements of the exchange rate as against the domestic currency simply because, the demand for their products will increase especially if the products in question are price elastic. But, if a firm or nation is yet to be fully integrated into the international market, the cost of entering the market when there is upward movement against the domestic currency might be too high to bear, especially if the firm is import dependent.

V. Conclusion and Recommendation

5.1 Conclusion

In order to investigate properly the link between globalization and the economic growth of Nigeria led the researcher to test for the causality relationship between globalization and the economic growth of Nigeria. From the pairwise granger causality tests, using P-value, we can conclude that globalization and economic growth of Nigeria has uni-directional relationship which runs from GDP to globalization.

The result of the Co-integration test shows that there is a sustainable long-run relationship (i.e. steady-stated path) between gross domestic product (GDP) and the explanatory variables (GLO, FDI, EDT and EXR). The Error Correction Mechanism result indicates that the coefficient of error correction term is -125. This shows that 125% of the errors in the short run are corrected each year. Thus, the coefficient captures the speed for adjustment at which the short-run of GDP ties with its long-run equilibrium.

The Unit Root Test result shows that foreign direct investment and exchange rate were stationary at first difference while gross domestic product, globalization and external debt were stationary at level given the 5% level of significance. Hence, the result of the regression can be fully relied on to make policy analysis and recommendation. The entire regression plane was statistically significant; this means that the joint influence of the explanatory variables (GLO, FDI, EDT and EXR). On the dependent variable (GDP) is statistically significant.

The result of the coefficient of multiple determination shows that 90.79% the variation in the gross domestic product (GDP) are explained by the variation of the explanatory variables namely; globalization (GLO), foreign direct investment (FDI), external debt (EDT) and exchange rate (EXR), while the remaining 9.21% is explained by variable not included in the model.

5.2 Policy Recommendation

The research work recommends that for Nigeria industrial sector to take substantial benefits of broad participation in globalization, the following conditions need to be fulfilled.

  • The Federal Government of Nigeria should revamp both local industries and agriculture through subsidies, concessions, uninterrupted power supply, technical assistance, improving security of lives and properties and the creation of enabling business operating environment.
  • Also sound macroeconomic policies are needed to reinforce the globalization exercise for a better result. The positive sign is an indicator that Nigeria is benefitting from globalization; this could be a product of the oil export in Nigeria which makes Nigeria to enjoy a favourable balance of payment.
  • Nigeria must look beyond the mono-product type of business (oil sector) and research into other sectors for new products of international standard.
  • The Federal Ministries of Commerce and Industries (FMCI) should focus more attention on the development of the home industry with a view to increasing the county’s share of non-oil trade.

 

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