Can Trade Liberalisation Provide Solution for the Needed Capital Goods in Nigeria?

Abstract

The developing world believes that they are at the receiving end of all that is bad with trade liberalisation owing to the nature of their economies. Contemporarily, that line of reasoning has become debatable as some developed economies have turned against the concept. Nevertheless, the exchange of ideas in the form of technology proves to be vital and cannot be possible under autarky especially for a developing economy. The study, therefore, examined if trade liberalisation led to increase in the growth of capital goods importation in Nigeria employing secondary data taken from the Central Bank of Nigeria (CBN) statistical bulletin and the World Bank from 1970 to 2014. To check for long run relationship among the variables, Johansen cointegration test was adopted. The study made use of Ordinary Least Squares (OLS) estimation technique and an error correction modelling approach. The results of the study show that trade liberalisation has no significant impact on the growth of capital goods importation in Nigeria both in the long run and in the short run. Following the empirical findings, the government is advised to prioritise the importation of capitals goods by drastically reducing import duties on them or making them duty free. This will facilitate the enhancement of local production of goods that the country can produce but imports, increase productivity and ultimately reduce the high import penetration presently killing the Nigerian economy.

Keywords: Trade Liberalisation, Capital Goods, Error Correction Modelling, High Import Penetration, Nigeria.