Trade policies and industrial sector performance in Nigeria 1970 - 2019

Abstract

The study conducted an empirical investigation on the trade policies and industrial sector performance in Nigeria from 1970 to 2019. This research became necessary due to growth and decay in industrial sector despite various trade policies adopted to enhance the performance of the sector. To obtain the empirical results, various trade policy variables were utilized as explanatory variables. Multiple regression analysis was adopted in the study in which Auto Regressive Distributed Lag (ARDL) model was the major method of analysis. The ARDL bound test was employed to examine the short-run and long-run relationship between the variables under consideration. The ARDL bound test results indicated existence of a long-run relationship among the variables. The results also revealed that custom and excise duty has negative and significant impact on industrial output (IQ) in the short-run but in the long-run it has positive and insignificant influence on industrial performance. The results further indicated that non-oil export has negative and significant influence on the industrial output (IQ) in the short-run as well as in the long-run. And also interest rate has negative and insignificant impact on industrial output both in the short-run and in the long-run. However, the results revealed that trade openness has positive and significant influence on the industrial output growth in the short-run and in the long-run. Also, oil export has positive and significant influence on the growth of industrial output in the short-run and in the long-run. The result further shows that exchange rate has positive and insignificant impact on industrial growth in the short-run and in the long-run. These results imply that any policy instrument that raises custom and excise duty, nonoil export which was used as a proxy for export diversification and interest rate by 1% will lead to a decrease in industrial performance by 52%, 26% and 41% respectively in the short-run while, in the long-run a 1% increase in custom and excise duty will lead to 45% increase and a 1% increase in nonoil export and interest rate leads to 34% and 55% decrease in IQ respectively. It also implies that any trade policy that relies on the use of trade openness, oil export and exchange rate a 1% increase could lead to 36%, 39% and 7% increase in industrial output growth in the short-run and 48%, 52% and 9% increase respectively in the long-run. The study made some recommendations which includes; that government should be cautious when using custom and excise duty in promoting industrial growth as it is observed that any form of tax has distortionary and adverse effect on industrial output performance and therefore, government needs to set her tax to the limit where it will not distort the incentive for investment.. Government should open up her economy for a higher level of free trade to access the inherent benefit of trade to improve the industrial sector.