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ANAYLSIS OF THE IMPACT OF TARIFFS ON ECONOMIC GROWTH IN NIGERIA (1980-2010)

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Abstract

This study looks at the impact of tariff on the economic growth of Nigeria. It examines the extent to which tariff has brought about economic growth in Nigeria between the period of 1980-2010. Tariff which is a form of tax or trade restriction levied on imported goods, in order to encourage the infant industries from international competitions, this can boost economic growth. The ordinary least square method of regression was used to analysis the relationship between tariff and economic growth. the T-test was used to determine the individual parameter estimate. The F-test was used to determine significance of the entire regression. Econometric analysis also was used to determine the impact of the tariff and other variables like real gross domestic product as a proxy to economic growth, export, exchange rate and trade openness on economic growth in Nigeria. The findings from the regression result show that tariff has a positive statistical significant impact on economic growth in Niger

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY.

Protection in form of tariff and free trade have long been argued in

economic theory and economic history. However , it is possible to say that

the precise relationship between trade barriers in form of tariff or free trade

in the long run economic growth remains a difficult theoretical issue that is

being explored in a variety of ways.

Simithian and Ricardian conclusion reinforced by the Hercscher-ohlin theorem

recommend free trade as the best commercial partners. This doctrine that is

focused on improvement in the level of income is based on static

framework that may limit the interpretation of the long run effect.

Relationship between economic growth and tariffs depends mostly on the

characteristics of a country. Tariff can benefit a country depending on

whether it is developed or developing or developed (a developed one seems

to lose) either big or small country and whether it has comparative advantage

in sector receiving protection. Tariffs are imposed on imported goods and are

used to refer to schedule of duties applicable to a list of commodities as the

commodities imported or exported. These taxes could be assessed either as a

percentage of volume of the commodity concerned (ad valorem), or on the

2basis of some physical features as : weight, length, an specific

gravity.(Johnson,1971).

Tariffs rates vary according to the type of goods imported. Import tariffs will

increase the cost of importers and increase the price of imported goods in

the local markets, thus lowering the quantity of goods imported. Tariffs may

be imposed on export, and in an economy with floating exchange rates,

export tariffs have similar effect as import tariffs .However, since export are

often perceived as „‟hurting‟‟ local industries while import tariffs are

perceived as helping local industries, export tariffs are seldom implemented

(Meier,2000)

Protectionists believe that infant industries must be protected in order to

allow them growth to a point where they can fairly compete with the larger

matured industries established in foreign countries. They believe that without

tariffs, infant industries will die before they reach a size of economies of

scale, industrial infrastructure, and skill in manufacturing have progressed

sufficiently to allow the industry to compete in the global market. They argue

that government have a responsibility to protect their corporations through

tariffs as well as their when putting its companies at a competitive

disadvantage by enacting laws for social goods .They believe that these law

3end up destroying domestic companies and ultimately hurting the citizens,

but these laws were designed to protect.

Tariffs is always seen as a redress to social and economic costs of trade or

as a way of enhancing economic advantages. However, in most cases

economists, argue that erecting barriers on trade impose costs in the

economy that exceeds the benefit gotten. These costs can rise from

insufficient resource allocation, intractable implementation and foreign

retaliation.The precise relationship between tariffs and economic growth has

long remained a difficult theoretical issue that is being explored in variety of

ways. The question often asked by international and development

economists, as well as their supporters is that which one lead to a faster

economic growth, is free trade or protected trade?, economists are still in

search for the acceptable answer to this question.1.2 STATEMENT OF THE PROBLEM

Tariffs can be used to protect infant industries and this tariff has its

problem it creates. High tariff and other forms of trade barriers have been

regarded as impediments to economic growth. The use of tariffs to protect

and to stimulate the production of the import substitution in Nigeria has

obvious problem. By protectingthese industries, inefficiency may be encouraged.

4High tariffs and other forms have burdened consumers with high price and

have shielded producers from international competition. However a safe

guard against frequent tariff changes and high tariff rates between 1995 to

2005. Nigeria‟s tariffs policy has faced great challenges of cumbersome and

lengthy imports procedures, frequent change in tariff. High duties on

consumer goods widen the gap between applied and bound rate with their

associated negative impact on the economy.

The Nigeria government can make adequate and reliable tariff policies,

and also encourage this infant industries to produce those goods that tariff

has been impose on; the quality of this goods should match those formally

imported. This study should be able to expose how the tariff imposed and the

structure of this tariff, can make an impact on the economic growth of

Nigeria and how this can improve the economy as a whole.1.3 OBJECTIVE OF THE STUDY

The objective of the study are as follows below;

1. To determine the nature of the relationship that exist between tariffs

and economic growth in Nigeria.

2. To investigate if tariff actually leads to economic growth in Nigeria.

5

3. To examine the extent to which tariffs imposition has improved

Nigeria‟s economy for the period 1980 to 2010.

4. To identify and analyse the remedy for tariffs impediments inNigeria.1.4 STATEMENT OF HYPOTHESIS

The working hypothesis for this study is as follow;

1. – Hi: There is no significant relationship between tariffs and growth, thus

it has not caused any economic growth in Nigeria.

2. –H0: Tariff has influence and impact on economy growth ofNigeria to an

extent.1.5 RELEVANCE OF THE STUDY

This study will be relevant to the Nigeria society in the following ways;

1. It will help us to understand the tariff structure of Nigeria

2. It will contribute to the literature review

3. It will provide empirical evidence on the nature of relationship that exist

between tariff and economic growth in Nigeria; this will in turn guide policy

makers in their policies formulation.

64. Investigating into the tariff regime will enable us to know the positive

contributions it has made to improve the export of locally produced goods.

5. It will help the government and policy makers to be able to formulate

adequate policy on trade.

6. It will help us to know, if tariff can lead to economic growth or not Nigeria1.6 LIMITATIONS OF STUDY

Usually, tariff are in form of excise duties, import tariff and export tariff.

inadequate complete reliable data, as data collected from some economic

journals and textbooks vary from each other. Time is another limitation

encountered by the research.


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