Economic Liberalization and Development in NIgeria: What Connection? more

Economic Liberalization and Development in Nigeria: What Connection? BY SABO VICTOR EMMANUEL (UNIVERSITY OF LAGOS, NIGERIA) MATRIC NO: 080901143 A TERM PAPER FOR THE COURSE, DEVELOPMENT PROBLEMS AND POLICIES (ECN 413) LECTURERS: DR (MRS) R.O. DAUDA MR ADEOYE FEBRUARY, 2012. INTRODUCTION: 1.1 Background to the Study: There have been various literatures on the relationship between economic liberalization and development indicators. Ideas given birth to in development discourse and debates and the economic policy recommendations suggested to reduce poverty and achieve development in developing countries have been promoted by International Financial Institutions (IFIs) especially, International Monetary Fund (IMF) and World Bank (WB) since their inception (Hameed, Nazir et al). Two decades after the establishment of these institutions, the main focus of trickle-down theory was to achieve high growth rates as noted by Todaro and Smith (2009). Industrialization was the device for enhanced growth rate and in this dispensation, agriculture suffered at the expense of industry consequentially terms of trade worsened against agriculture. At the end of 1960s, IFIs realized that their over-emphasis on achieving high growth rates was problematic in the sense that although these Least Developed Countries (LDCs) did reach their economic growth targets, the levels of living of the masses of the people remained, for the most part unchanged, showing poor performance on human indicators (Todaro and Smith, 2009). As a result the World Bank proposed alternative policies packaged as µBasic Needs¶ and µRedistribution with Growth¶ which I think was as a result of the discourse at the Eleventh World Conference of the Society for International Development in New Delhi 1969. In these policies growth was still important and considered to be a necessary precondition for sustained economic development, but countries were advised to look after their poor and provide basic facilities to them as well. After the debt crisis in 1980s, many countries experienced extremely high inflation and worsening of balance of payment positions. Around this time the IMF and WB had been the driving force on a global level, thinking under the guise of Washington consensus coined by John Williamson in 1984 to describe relatively specific set of ten economic policy prescriptions by the Washington based institutions above and had facilitated and guided economic restructuring in a number of countries. Essentially, LDCs were asked to open up their economies and integrate with the world economy through adopting Structural Adjustment Programs (SAP). Post-SAP, the process of economic liberalization and globalization emerged in LDCs and still continues today. While some scholars say economic liberalization has affected developing economies positively, some others say its impact is exactly the opposite. The rest say it has both negative and positive effect on the economy (Round and Whalley, 2002). While Winters (2004), Krueger (1998), BenDavid and Loewy (1998), and Greenaway et al. (1998) continue to argue in favour of the positive impact of trade liberalization on growth and industrialization. Greenaway et al. (1998) further believe that there is a lag response to liberalization. In contrast, Ocampo and Taylor (1998), Rodrik (1998), Shafaeddin (1995, 2005) and Weisbrot and Baker (2002) are doubtful. There have been similar studies carried out for different developing countries like India (A. Kotwal, Bharat and Wadhwa, 2010), Argentina (Robbins, Gonzales, and Menedez, 1995), Chile (Robbins, 1996a), Costa Rica (Robbins and Gindling, 1997), Uruguay (Robbins, 1995b, 1996b) and the likes. However, in Nigeria, we have not had that much study. Some related studies, as noted by Kazeem (2009), are those by Ajayi (2001), Adewuyi (2001), Asobie (2001), Iyayi (2003), Igudia (2003), Musa (2000), Kareem (2007), Olaniyi (2002) among others. The focus of this study is more on the connection between the trade aspect of economic liberalization and economic development in Nigeria. And as noted above economic growth is a precondition for development and because of the insufficiency of data (which serves as a limitation to this study), indices for economic growth will be used as a substitute for economic development. The study is divided into three parts: the remaining sections in this part deal with the problems faced by the country as touching this topic as well as the conceptual issues and theoretical framework, the second part deals with trade policies that have been adopted (past and present) with the goal of development at heart then the recommendations and conclusion forming the last part. Trade theories explain that liberalization is beneficial to the nations taking part in it. Simple trade theories like the Comparative Advantage and the Heckscher-Ohlin theory supports this fact. However, studies have shown that liberalization does not give the picture depicted by these theories (maybe because of their unrealistic assumptions). This study also attempts to bring to light the Nigerian case. Has liberalization in Nigeria followed what theory predicts? Are the right mechanisms in place to ensure the successful translation of these policies in the economy? 1.2 Problem: Countries that managed the globalization process incisively proved that it can be a powerful force for economic growth and those who could not were adversely affected as evidenced by depressing records on economic growth and poverty. Empirically, a huge body of literature indicates that economic globalization stimulates economic growth, reduces poverty and generates employment opportunities (Cuadros et al. (2004), Greenway et al. (2002), and Kemal et al. (2002). But globalization affects growth in different countries in different ways due to difference in government policies, population growth rate and the different institutional factors across countries. Nigeria is a country blessed with abundant human and natural resources. Despite these blessings, she is still rated as one of the poorest economies in the world today ranked 142 behind Lesotho with a Human Development Index (HDI) for 2010 of 0.423 and a Multidimensional Poverty Index (MPI) of 0.368. Today Nigeria ranks among the fifteenth poorest country in the world despite her position as the 6th among the Oil producing countries of the world. Oil- the black gold- being reckoned as one of the highly priced natural endowments in the world today, Nigeria by all standards supposes to be rated highly in the committee of wealthy nations. Economic liberalization, a strategy suggested by the International Financial Institutions (IMF and WB) to developing economies, which is meant to bridge the inequality gap between the developed and the developing economies, even after been implemented in the country does not seem to be working for us as a country. What can we say then is the case for Nigeria? Is it that the several trade policies (both self-made and imported) implemented is not good for our economy or that we are the cause for the failure of these policies. Are there other developing economies like ours that implemented the foreign policy and it worsened their situation? Are there others it worked for? What exactly could have been the problem? Or are we experiencing de-industrialization instead of development. In short, what is the connection between the economic liberalization policy and economic growth in Nigeria? 1.3 Conceptual Issues: According to Kareem (2009), there is no consensus on the definition of globalization in the development literature. Most economists take globalization to mean the closer integration of economies through trade and the flow of factors. While some used the growth rate of trade and factor (but capital rather than labour) flow to measure globalization, others take it to be economic liberalization, which enhances closer economic interactions and even some analysts gave a narrower definition to globalization, as being the organization and governance of global production systems (Lall, 2002). Adewuyi (2001) takes globalization to mean the process of both vertical and horizontal integration that involved an increased volume and variety of transnational transactions. Omar (1996) conceived globalization as the integration of domestic economies via financial and trade interactions, leading to the collapse of barriers to trade that makes the domestic economy influenced by the policies of another country through trade and investments. Other definitions of globalization were given by Igudia (2003), Lall (2002) among others. Although economic globalization has many dimensions, loosely speaking it refers to removal of trade restriction (such as tariff, quota), liberalization of capital markets and free movements of labor. All these could be considered as the indicators of economic globalization. According to Kazeem (2009) the issue of Globalization has brought about three schools of thought: those who believe that globalisation is the best thing that could happened to this world, those who believe that the advent of globalization has brought havoc to the economy and those who believe that it could have both positive and negative effect on the economy depending on how they accept and apply it. Economic liberalization is a subset of globalization and it is multidimensional as it encompasses trade, financial, telecommunication etc. To Kazeem (2009), economic liberalization entails freedom in the movement of goods and services across the border of the trading countries. Economic liberalization may be described as the freedom to engage in economic activity at home and/or abroad, a freedom subject to institutional and policy constraints needed to guarantee public interests at large (Ognivtsev, 2005). To Bhalotra (2002), Economic liberalization refers to both macroeconomic stabilization and micro-structural change. As advocated by the IMF and the WB, the package of reforms typically includes some or all of the following changes: reduction in government expenditure, opening of the economy to trade and foreign investment, adjustment of the exchange rate, deregulation in most markets and the removal of restrictions on entry, on exit, on capacity and on pricing. Robert A. Packenham, (1994) is of the view that economic liberalization, which he defined as reduced control by the state over the market and the private sector, is an aggregate concept that has a number of elements or sub dimensions. In his words, Among these elements µare privatization of state enterprises, more liberal trade policies and liberal investment policies, deregulation of ongoing private-sector enterprises, reductions in state subsidies, budget deficits, state bureaucracies, and moves toward bureaucratic decentralization.¶ Development on the other hand is a word that is difficult to define because of the diverse contextual usage of the concept. But simply put, the term means improvement or to become more advanced, more mature, more complete, more organized, more transformed etc. Rodney (1969) sees it as a many sided process but defines it in relation to the individual. As he explains, ³at the level of the individual it implies increased skills and capacity, greater freedom, creativity, selfdiscipline, responsibility and material well-being´. Todaro also sees development as a multidimensional process but gives a definition that is often considered as the other extreme of emphasis from that of Rodney. He describes development as a multi-dimensional process involving the reorganization and reorientation of the entire economic and social system. This involves in addition to improvement of income and output, radical changes in institutional, social and administrative structures as well as in popular attitudes, customs and belief (Todaro 1982). Todaro¶s definition gives the meaning, which the concept of development assumes whenever it is discussed in relation to countries. Development at this level of conceptualisation is often understood in terms of economic development. This does not only signify economic development, but as Todaro notes above, it equally implies improving the social, administrative, political as well as people¶s cultural attitudes and beliefs that are anti progress. Also, Ibezim (1999) further explains, ³economic development does not only involve physical and financial progress but also improvements in the political and social aspects of society´. As stated in Todaro and Smith (2009), µDudley seers posed the basic question about the meaning of development succinctly when he asserted: ³The questions to ask about a country¶s development are therefore: What has been happening to poverty? What has been happening to unemployment? What has been happening to inequality? If all three of these have declined from high levels, then beyond doubt this has been a period of development for the country concerned. If one or two of these central problems have been growing worse, especially if all three have, it would be strange to call the result development even if per capita income has doubled´¶ The Washington Consensus is generally associated with the global trend towards greater economic liberalization since the 1980s, and has changed over time, largely in response to poorer economic performance throughout the world, especially in the developing countries, over the last two and a half decades. John Williamson originally coined the phrase in 1984 to refer to ³the lowest common denominator of policy advice being addressed by the Washington-based international financial institutions to Latin American countries´: Fiscal discipline, Tax reform (to lower marginal rates and broaden the tax base), Interest rate liberalization, A competitive exchange rate, Trade liberalization, Liberalization of inflows of foreign direct investment, Privatization and deregulation, Secure property rights. Over the time, some additional elements were added: Corporate governance, Anti-corruption measures, Flexible labour markets, WTO agreements, financial codes and standards, ³Prudential´ regulations over financial flows, Effective and stable exchange rate regimes, Independent central banks/inflation targeting, Social safety nets, Targeted poverty reduction. S.M. Shafaeddin (2005) argues that though trade liberalization is essential when an industry reaches a certain level of maturity, provided it is undertaken selectively and gradually. Nevertheless, the way it is recommended under the Washington Consensus, it is more likely to lead to the destruction of the existing industries, particularly of those that are at their early stages of infancy without necessarily leading to the emergence of new ones. Under a simple model, globalization should benefit the poor in poor countries and reduce inequality in poor countries, and within the developing world the poorest countries and least educated workers should have the greatest opportunity to benefit from globalization (Kremer and Maskin). 1.4 Theoretical Framework: Traditional explanations of trade as ³the engine of growth´ and the impact of trade on economic development are rooted in the principles of comparative advantage. The theory of comparative advantage arises from nineteenth century free trade models associated with David Ricardo and John Stuart Mill, which were modified by trade theories embodied in the factor proportions or Hechsher ± Ohlin (1933) theory and Stolper-Samuelson (1941) and Rybzsnski (1955) effects. These trade models collectively and in various ways predict that an economy will tend to be relatively effective at producing goods that are intensive in the factors with which the country is relatively well endowed. In other words, comparative advantage provides that when nations specialize, they become more efficient in producing a product (and indeed a service), and thus if they can trade for their other needs, they and the world will benefit. The principles portrayed in the comparative advantage explanation are also in line with the theories advanced in early writings by John Stuart Mill, stating that trade, according to comparative advantage, results in a more efficient employment of the productive forces of the world. According to Mill, this was considered as the direct economical advantage of international trade (Meier, 1995). One might be bothered with this question: why do we expect economic liberalization to produce growth? This is a simple analysis: first, import liberalization provides domestic firms access to capital equipment embodied with new technologies, better intermediate inputs and expands their choice set to act. A freedom to invest and enter the market increases the extent of competition and puts pressure on the incumbents to upgrade their technologies often through imported machinery. With the entry of new firms in a more competitive market, the process of creative destruction goes to work. Efficient firms drive out inefficient firms, factors gets reallocated to more productive use increasing the overall productivity of factors in the economy. Due to technology transfer, productivity in industry and service sectors grows rapidly attracting labor from agriculture. The reallocation of labor from agriculture to more productive sectors contributes further to growth. This process also makes the workers left behind in agriculture better off because the real wage rises as labor markets tighten in agriculture (Bharat et al, 2010). Basically, liberalization leads to growth because it encourages competition and entrepreneurship. DISCUSSIONS: According to J.S. Kwame and Rudiger (2008), the policy shift dates back to 1981, when the World Bank published the influential Accelerated Development in Sub-Saharan Africa: An Agenda for Action, often referred to as the Berg Report, after its principal author, Elliot Berg, from the University of Michigan¶s Economics Department. While IMF was initially responsible for shortterm macroeconomic stabilization programs, and the WB for medium-term structural adjustment programs (SAPs), these converged around what was subsequently dubbed the µWashington Consensus¶. As earlier noted, this Consensus is generally seen as spearheading the global trend towards greater economic liberalization since the 1980s. While its policy priorities have changed over time (responding, in part, to poorer than expected economic performances in implementing countries), it has remained at the core of economic policy making across most of the African continent. According to Analogbei, Nigeria¶s trade policies could be discussed under two broad regimes, that is, the period before the introduction of the Structural Adjustment Programme (SAP), and the period after its adoption. Throughout these regimes, trade policies exhibited identical characteristics of being short-term in nature (operational within each fiscal year and reviewed thereafter), and directed at meeting specific objectives such as, ensuring balance of payments viability and export promotion. They were also meant to complement other policy initiatives, such as, industrialisation policy, employment creation and self-sufficiency policies, etc. The trade policies implemented under the two regimes were as follows: (I) Pre-Sap Trade Policies At independence, Nigeria¶s economy was in many respects, rural and relatively backward, purely agrarian with very narrow industrial base. In an effort to modernise the economy, the early political leaders adopted development planning strategy as an instrument for securing a steady and rapid growth of the economy. Emphasis was placed on accelerated development of the economy through expansion in the nation¶s industrial base. The idea was for the country to be able to at least produce some of her consumables locally and in effect reduce dependence on external sources for the supply of such items. To be able to finance the imports necessary for the prosecution of the industrialisation programme, exports of cash crops which were then the main source of foreign exchange had to be enhanced. Thus, farmers were encouraged to expand their production of cash crops with guaranteed external markets by the Marketing Boards. The export basket consisted of cocoa, palm produce, rubber, groundnut, ginger, and some solid minerals, coal and tin. The insatiable urge to quicken the pace of development gave rise to heightened demand for imports, which in turn exerted pressures on the balance of payments. Consequently, the trade policies had to be restrictive in order to moderate the demand pressures. Exchange control measures were then introduced to adjust the demand for foreign exchange to the available supply so as to maximise the use of reserves by ensuring that essential imports were accorded priority over other imports in the use of foreign exchange resources. Also, in order to give effect to the import substitution industrialisation policy, trade barriers in the form of imports licensing was put in place to complement imports tariffs in the control of import, as well as protect domestic industries that were set up to produce import substitutes. The customs tariff structure was deliberately discriminatory, biased in favour of capital goods and raw materials. Items considered as luxury goods were either put on import prohibition list or had very high import tariffs placed on them. In terms of directional flow of trade, Nigeria¶s imports and exports were concentrated in the Western Hemisphere, although not as a deliberate policy, but due to historical inheritance. The second National Development Plan (1970-74) came on the heels of the termination of Nigeria¶s civil war. The major strategy of the plan was to secure economic growth through the replacement of destroyed assets and restoration of the productive capacity of the country, as well as ensure equitable distribution of the fruits of development. It was also envisaged that by the end of the plan period, Nigeria would have been able to produce its own goods and services, finance its development, rely on its own labour, as well as strive for the best terms for its exports. Towards this end, the plan was designed to incorporate and enhance the priority areas of the 1962 - 68 plan. That is, enhance agricultural and industrial production, as well as develop high level and intermediate level manpower. Additional inputs were therefore required for the execution of the plan which eventually gave fillip to import demand. To moderate the pressures, restrictive trade policies were retained and strengthened. Exchange control measures became stringent with the introduction of foreign exchange budgeting in 1971/72 to relate aggregate foreign exchange expenditure, by category, to income. Similarly, import licensing was intensified and increasing number of non-essential items were placed under ban, while some finished consumer items considered not too essential were placed under specific license so as to keep their importation within specified quota. Mid-way into the execution of the second development plan the external reserves position of the country witnessed dramatic change for the better, following increases in the international price for crude oil. According to CBN (1979), ³the sudden and unexpected increase in the prices of crude petroleum in 1973 coupled with the country¶s low absorptive capacity, and the existence of various production bottlenecks in the economy had by 1974 led to a situation whereby the country was faced with surfeit of funds for which it had no immediate investment outlet internally.... In the circumstance, it was thought that the exchange control regulations needed further liberalization´. Consequently, the restrictions on import payments were removed in 1974. The boom from the crude oil export earnings spilled into the Third National Development Plan (1975- 80). The design of the Third National Development Plan was very ambitious, predicated on enhanced earnings from the oil sector of the economy. Trade policies were accordingly relaxed. By the time the Fourth National Development Plan (1981 -85) came up, the economy had started experiencing declines in foreign exchange earnings which was climaxed by the oil shock of the early 1980s. Oil price fell precipitously, but the demand for imports maintained the upward direction. The external reserves level which could finance about 24 months of imports in 1974, could only support 1.8 months by the end of 1978, and less than one month in the early 1980s. This was a reflection of the fact that import demand had become price inelastic, and the resultant effect manifested in balance of payments deficits. Concerted efforts were then made to control the import trend through imposition of stricter trade restrictions. The mounting level of controls administered by innumerable persons further created administrative bottlenecks. The inability of the control measures to effectively secure downward adjustment to imports demand against the backdrop of shrinking export earnings gave rise to serious payments imbalance which required urgent and drastic remedial actions from the authorities. (II) Trade Policies during SAP The magnitude of the distortions in the economy ushered in by the culture of controls made it imperative for government to take urgent and drastic actions to ameliorate the situation. Thus, in July, 1986, the Structural Adjustment Programme (SAP) was introduced to tackle the problem of imbalances in the economy and thereby pave the way for stable growth and development. The main elements of the programme include: (i) Restructure and diversify the productive base of the economy in order to lessen the dependence on the oil sector and on imports; (ii) (iii) (iv) Achieve fiscal and balance of payments viability over time; lay the basis for sustainable, non-inflationary growth; and lessen the dominance of unproductive investments in the public sector, improve the sector¶s efficiency and intensify the growth potential of the private sector. A number of strategies were enunciated to achieve the broad objectives of the SAP. Specific to international trade, the primary focus was on liberalization of trade and the pricing system, with emphasis on the use of ³appropriate price mechanism for the allocation of foreign exchange´. The Second-tier Foreign Exchange Market (SFEM) was then introduced, under which the exchange rate of the naira was to be determined by the market forces of demand and supply. The price determination mechanism provided the means for ultimate allocation of foreign exchange to endusers as against the erstwhile use of administrative discretion. The application of import and export licensing became irrelevant in the new dispensation and were consequently abolished. To encourage export activities, the policy which required exporters to surrender their export proceeds to the Central Bank of Nigeria, was abolished. Consequently, exporters were allowed to retain 100 percent of their export earnings in their domiciliary accounts from which they could freely draw to meet all their eligible foreign exchange transactions. Furthermore, under the revised duty drawback/suspension scheme, exporters/producers could import raw materials and intermediate products free from import duty and other indirect taxes and charges. The Export Incentive and Miscellaneous Provisions Decree of 1986 was promulgated to encourage exports. Through it, the CBN could provide refinancing and rediscounting facilities to banks to encourage them to provide export financing to their customers. Also, the Nigerian Export Credit Guarantee and Insurance Corporation came on stream in 1988, and was subsequently renamed Nigerian Export-Import Bank (NEXIM), to provide credit and risk bearing facilities to banks, so as to encourage them to support exports. In the area of imports, the devalued exchange rate of the naira at the different shades of the Foreign Exchange Market was meant to make imports dearer and thus discourage excessive importation and thereby reduce the pressure on the balance of payments. Import licensing was abolished and reliance was placed on the use of customs tariff for the control of imports. The list of items on the imports prohibition list was also drastically reduced. As earlier stated, direct control of external trade activities featured prominently during the implementation of the development plans. Within each Plan framework, attempts were made to direct trade policies towards ensuring optimal allocation of resources to the productive sectors of the economy. Thus, the gross domestic product at the end of each plan period reflected the extent to which resources were channelled to the relevant sectors and the pattern of production in the economy. Specific actions taken to realise the objectives of the first and second development plans include giving adequate attention to both agricultural and industrial production. Agriculture received some measure of attention from both the Federal and regional governments. For instance, the Nigerian Agricultural Development Bank was created in 1973 to facilitate lending to the agricultural sector. A set of priorities were also lined up for execution in the industrial sector, such as, the development of agro-allied industries, petrochemical and chemical industries, integrated iron and steel industries, motor vehicle assembly plants, manufacture for exports, provide linkages and diversification in the textile industries and continue the implementation of import substitution policy. The Nigerian Bank for Commerce and Industries (NBCI) was established to supplement the work of Nigeria Industrial Development Bank (NIDB) in industrial financing. The execution of both plans relied heavily on foreign inputs and in consequence, the demand for imports intensified. However, by the end of 1974, most of the lofty goals set in the plans were not achieved due to lack of coherent strategic framework and delayed take-off of the execution of programmes particularly under the second plan. Also, the import-substitution industrial policy did not go far enough to include the manufacture of capital goods. Instead, the industrial structure remained focused on the manufacture of non-durable light consumer items, while the planned development of iron and steel complexes and chemical industries did not materialise. On the whole, the gross domestic product recorded some modest growth, although it was below expectations. The execution of the agricultural programmes was left in the hands of governments and it was bedevilled by government inefficiencies, and in consequence, agricultural output declined. It declined continuously in each of the plan year below the 1970 level. The contribution of agriculture to GDP fell from 44 percent in 1973/74 to 36.9 percent in 1975. Manufacturing recorded only 7 percent contribution to output as against the 12.7 percent projected for the period. For most part of 1970 - 1974, external trade- induced productive of the economy remained below the base year figure. The Third National Development Plan (1975-80) had as its ultimate objective the improvement in the standard of living of the average Nigerian so that Nigeria could join the ranks of developed countries of the world. Against this backdrop, an ambitious seven short-term objectives were expected to be achieved during the plan period. These were broadly classified as (i) growth and development objectives aimed at achieving increases in per capital income, supply of high level manpower as well as diversification of the economy. (ii) Social Equity Objectives to ensure more even distribution of income, reduce unemployment, achieve balanced development and Nationalisation of economic activities. Unfortunately, the Plan objectives like the previous ones were hardly met owing to poor execution and inadequate funds. For example, besides dwindling allocation of funds for the development of the agricultural sector, the farmers¶ earnings remained low because of the activities of the marketing boards. Also, the relaxation of import controls and the massive importation of essential commodities during this period by government, exposed the local industries to stiff competition. At the end of the plan period, agricultural output recorded negative growth, but manufacturing output was somehow modest despite the odds. The Fourth National Development Plan adopted the objectives of the Third National Development Plan. Execution of the plan, like its predecessors was still highly dependent on imported inputs. During this period the agricultural sector was in a very poor state owing to continuous neglect in terms of funding and adequate incentives to farmers. The relaxed import policy began to take its toll on the manufacturing sector as products of local manufacturers could not cope in terms of price, quality and quantity with the imported products. In sum, the productive sector experienced output decline. Throughout the implementation period of the third, and fourth national plans, productivity remained consistently below the base year level. The productivity index during the period 1975 - 1984 ranged between 43.5 and 97.4 per cent. The situation was compounded by the sharp drop in oil revenue as a result of the second oil shock of the early 1980s. Funding imports became difficult and the shortages of essential items became a reality all over the country. All efforts designed to address the ensuing economic problem, namely the Economic Stabilisation Act of 1982 and the Economic Emergency Act of 1985 could not effectively address the problems. By the mid-1986, decision was taken to radically restructure the economy. While there are serious methodological challenges and disagreements about the strength of the evidence, the most plausible conclusion is that liberalization generally induces a temporary (but possibly long-lived) increase in growth. A major component of this is an increase in productivity (Winters, 2004). Simple theory predicts a positive relationship between trade and growth, at least if we can measure real income appropriately, although the situation becomes more complex once one allows for effects such as those on the capital, dynamic comparative advantage and agglomeration (It should be noted here, however, that real GDP is a poor measure of the gains from trade. It misses the consumption gains and, by valuing output and pre-reform prices, underestimates production gains. This is also supported by Fashola, 2011). If there is such a relationship, taking first differences of it gives us one between trade liberalization and the growth of income and this could actually be very long-lived (Winters, 2004) Lall et al. (1994) are among those who distinguish four groups of activities within a country as far as the impact of trade liberalization is concerned. The first group includes those with strong resource advantage or well-developed capabilities so they are already competitive internationally, and those that benefit from natural protection because they are heavy and difficult or expensive to transport, or require close producer-buyer interaction. They benefit from liberalization. The second group consists of those which are in ³a short distance from the technological frontier´, i.e. those which are near the stage of maturity (which is where I would place Nigeria). They may also benefit from liberalization. The third group includes activities which are potentially viable, but require time to learn, i.e. are still at the stage of infancy. Sudden liberalization of imports will hurt them. Finally, there are activities, which are not economically viable currently, or potentially, so they suffer from liberalization but they should be allowed to die. Such categorization would imply that protection/liberalization should take place on selective basis. 2.2 Some Reasons for the Failure of Economic Liberalization in Developing Countries As purported by (Hameed and Nazir others) trade liberalization aspect of globalization is a necessary but not sufficient condition for growth. There are other mediating factors which affect the growth of the economy ranging from political and institutional framework to historical trend in macroeconomic variables included but not limited to population, inflation, investment and government spending dynamics. 1. Ineptitude of the government: According to Nash and Takacs (1998) the failure of the government to choose and maintain a realistic real exchange rate has been one of the main causes of the failure of trade liberalizations in developing countries. Another feature of the empirical studies undertaken by the World Bank in general is that they attribute the failure of trade liberalization to achieve development objectives, particularly in the case of Africa, to insufficient liberalization and inappropriate implementation of liberalization and adjustment programmes. Often the government is blamed for lack of appropriate sequencing and speed of liberalization or inappropriate macroeconomic policies (World Bank 1994 and Husain and Faruqee 1994). 2. Level of development: As noted by Victor Ognivtsev (2005), the effects of freer trade can be quite beneficial after a country has achieved a certain level of economic and institutional development, as well as after its economy has reached a degree of international competitiveness and has effective access to world markets for its exported products and services. Thus, a certain ³Triad´ could be formulated for a successful trade liberalization strategy ±Supply Capacity, International Competitiveness and Market Access. 3. Level of Education: Possibly top of any a priori list of the causes of economic growth is education, although simple exercises that include education variables in cross-country growth equations have frequently not provided convincing proof (e.g. Hanushek, 1995; Behrman, 1999). The role of education is multi-dimensional. It is likely to induce flexibility (education imparts transferable skills). It brings its own rewards in terms of productivity, so that increasing human capital will lead to increased output. Education also appears to have strong payoffs in terms of health and in social and political capital. Finally, it is almost certainly necessary to facilitate the absorption of new technologies ± Abramovitz and David (1996). Since in the long run technology is the key to sustained growth ± merely accumulating human or physical capital will eventually encounter diminishing returns ± this argument is a key one. Education is therefore likely to be another necessary concomitant policy if openness is to bring continuing and extensive, dynamic benefits. 4. Corruption: According to Wei (2000), open countries face greater losses from corruption than less open ones, because corruption impinges disproportionately on foreign transactions. He finds evidence for this theory in two cross-country relationships. First, corruption is correlated with µnatural openness¶ (essentially the Frankel-Romer variable, which is exogenous) but not with µresidual openness¶ (the difference between actual and natural openness, which is probably related to policies). Second, more open countries pay their civil servants better, suggesting that they value better administration more highly (although there may be difficulties over the direction of causation here). RECOMMENDATION AND CONCLUSION: 3.1 Recommendations: 1. Victor Ognivtsev (2005) said that trade liberalization requires the existence and smooth functioning of a number of interrelated institutions, which facilitate the implementation of liberalization measures at the lowest possible social and political costs. To mention just a few of the institutions required: a social safety net for those who become unemployed; retraining for the labour force which is becoming redundant; assistance for business entities in introducing the necessary structural adjustments; and labour mobility to facilitate the movement of labour among different regions of the country. Rodrik (2000), however, addresses the question of what institutions matter and how to achieve them. On the former he identifies five critical areas: property rights (strictly control over property rather than legal rights per se), regulatory institutions to correct externalities, information failures and market power (such as anti-trust bodies, banking supervision and, more controversially, co-ordination of major investment decisions, as Rodrik argues was provided by Korean and Taiwanese economic intervention), institutions for macroeconomic stabilisation, social insurance (these are often transfer programmes but Rodrik argues that other institutions such as jobs-for-life can also play the same role) and institutions to manage social conflict (just like the one we experienced in the country early January this year due to the removal of fuel subsidy). 2. Another solution to the problem is what Ognivtsev (2005) calls having professional public administration. To him vital role of a professional public administration cannot be overestimated. Enforcing laws and regulations on enterprises, affluent people and local bodies cannot be achieved by demoralized, ill-informed, and poorly paid officials. In other words, the administrative functioning of the state must be considerably strengthened. 3. Another solution is the investment in education (Clinton, 2000). 4. According to Winters (2004) for liberal trade policies to have a long-lived effect on growth almost certainly requires their combination with other good policies such as those that encourage investment, allow effective conflict resolution and promote human capital accumulation. 3.2 Conclusion: In conclusion, for a variety of reasons, the level of proof remains a little less than one might wish but the preponderance of evidence certainly favours the conclusion that economic liberalization leads to economic growth. Part of the benefits of trade liberalization depends on other policies and institutions being supportive but there is also evidence that openness actually induces improvements in these dimensions. Given that trade liberalization is administratively simple to implement ± indeed a transparent and liberal policy releases administrative resources for other tasks ± the case for making it part of a pro-growth policy cocktail is very strong (Winters, 2004). One important lesson for Nigeria from the Indian experience and especially from its comparison with other Asian countries is that a country can neglect agriculture at its own peril (see Bharat et al, 2010) REFERENCES: 1. Jomo Kwame Sundaram and Rudiger von Arnim (2008), Economic Liberalization and Constraints to Development in Sub-Saharan Africa. 2. Victor Ognivtsev, Trade Analysis Branch, DITC United Nations Conference on Trade and Development United Development (UNCTAD) (2005), Economic Liberalization as a Driving Force of Globalization: Experiences of Countries in North and Central Asia 3. Michael Kremer and Eric Maskin, Globalization and Inequality. 4. O. Felix Ayadi, Esther .O. Adegbite, Funso .S. Ayadi, Structural Adjustment, Financial Sector Development and Economic Prosperity in Nigeria. 5. Robert A. Packenham (1994), The Politics of Economic Liberalization: Argentina and Brazil in Comparative Perspective, Working Paper #206 - April 1994 6. L Alan Winters (2004) Trade Liberalisation and Economic Performance: An Overview. 7. S.M. Shafaeddin (2005), Trade Liberalization and Economic Reform in Developing Countries: Structural Change or De-Industrialization? No. 179, April 2005 8. Jomo K. S, Economic Liberalization and Development in Africa. 9. Ashok Kotwal, Bharat Ramaswami, Wilima Wadhwa (2010) Economic Liberalization and Indian Economic Growth: What's the evidence? 10. Sylvanus I. Ikhide and Abayomi A. Alawode, Financial Sector Reforms, Macroeconomic Instability and the Order of Economic Liberalization: The Evidence from Nigeria 11. Sonia Bhalotra (2002), The Impact of Economic Liberalization on Employment and Wages in India (Paper submitted to the International Policy Group, International Labour Office, Geneva.) 12. Olayinka Idowu Kareem (2009), Economic Liberalization and Job Creation in Nigeria. (An article published in Central Bank of Nigeria¶s Economic and Financial Review for March 2009) 13. Abid Hameed and Anila Nazir, Economic Globalization and its Impact on Poverty and Inequality: Evidence From Pakistan 14. Andrew Mwaba (2000), Trade Liberalization and Growth: Policy Options for African Countries in a Global Economy, African Development Bank 15. Mr. F. C. O. Analogbei, Trade Reforms and Productivity in Nigeria. 16. Vlad Spanu (2003), Liberalization of the International Trade and Economic Growth: Implications for both Developed and Developing Countries, Harvard University, John F. Kennedy School of Government, MA 02138. 17. Ikeanyibe Okey Marcellus (2009), Development Planning in Nigeria: Reflections on the National Economic Empowerment and Development Strategy (NEEDS) 2003-2007, Department of Public Administration and Local Government Studies,University of Nigeria, Nsukka, Nigeria 18. Inye Nathan Briggs (2007), Nigeria: Mainstreaming Trade Policy into National Development Strategies.