Household Welfare Impact of Trade Liberalization in Nigeria: A Computable General Equilibrium Model

Abstract

Trade liberalization policy across countries gathered momentum in the 1990s and has not abated ever since. These policy reforms have been fueled by the desire of countries to harness the benefits embedded in international trade. While the empirical link between trade liberalization and its economic growth outcomes in Nigeria has received considerable attention in the literature, the household welfare implications or income distributional effect of this policy remains under-researched. This study examines the various household welfare scenarios that will result from the imposition of shocks on import taxes in the Nigerian economy. The paper utilizes the computable general equilibrium model based on a 2006 social accounting matrix for Nigeria to conduct a macro-micro simulations of the economy. The study found evidence that a policy of full or partial trade liberalization of the Nigerian economy will on overall, have a mixed welfare implications for Nigerian households in the short run. While the policy will lead to a general improvement in consumption of goods and services as well as in real income of all households, it will at the same time hurt households by inducing unemployment in the two key sectors of agriculture and industry. It will therefore be helpful to pursue a trade liberalization policy on a sectorial basis with emphasis on those sectors that will not severely undermine the welfare needs of Nigerian households.