CHAPTER ONE
 INTRODUCTION
1.1.        Background of the study Towards enhanced and sustainable economic performance, governments are often faced with the challenge of adopting either protectionist measures or liberalizing its operations. The policy debate seeks to resolve the question of whether it is the protectionist or liberalized economic policy that promotes rapid economic growth. Economic liberalization policies have been widely acknowledged in development finance literature as a critical factor in economic performance. According to Anowor (2013), trade openness or liberalization is the process of reducing or removing restrictions on international trade which may include the reduction or removal of tariffs, abolition or enlargement of import quotas, abolition of multiple exchange rates, and removal of requirements for administrative permits for imports or allocations of foreign exchange. Trade openness is central to the structural adjustment programmes being implemented by most countries in Sub-Saharan Africa including Nigeria (Yusuf, 2013). To Effiong (2011), the cornerstone of the SAP-induced policy was the opening up of domestic economies to face increased competition in order to ensure efficiency in resource use, removal of wastages, elimination of persistent misalignment in the external and domestic sectors which ensured continuous balance of payments disequilibrium, and a general redirection of the economy to the path of recovery and growth. The policy measures implemented included the elimination of non-tariff barriers to imports, the rationalization and reduction of tariffs, the institution of market determined exchange rates and the removal of fiscal disincentives and regulatory deterrents to exports (Eleanya, 2013). Basically, liberalization policies can impact economic performance through trade and/or finance flows. A major argument for trade openness or liberalization is enhancement of efficiency and scale economies in the production activity. Tybout (1992) argues that entrepreneurial efforts are better rewarded through increased exposure to international competition. He posits that higher output levels associated with liberalization lower unit costs of production, an indication of efficiency in production. Trade liberalization, for instance, opens up new markets, beyond national frontiers, thus enabling firms to produce and reap the benefits of large-scale production. Firms seek to be more efficient in their production process in order to compete favourably with their foreign counterparts. Economic liberalization promotes the establishment of export-oriented industries to enhance the foreign exchange earning capacity of the economy and the inflow of raw materials and capital goods (including technological innovations) needed in production. Hence economic openness could lead to enhancement in technology acquisition. Grossman&Helpman (1991) argue that openness to trade can influence technological change, thereby making production more efficient and in the process enhancing productivity improvements. Adenikinju&Chete (2002) aver that opening up an economy offers immense opportunities to overcome limitations imposed by the shallow domestic markets (particularly in developing economies) which could enhance the inflow of foreign exchange required to finance essential production imports. Economic liberalization promotes the flow of factors of production, like capital (human and physical), technology and finance across national boundaries and thus enhances the scope of economic activity in the importing country. Some academics argue however that major benefits from liberalization may not derive from enhanced capital inflow into the domestic economy but from the attendant operational efficiency arising from reduction of domestic distortions and lock-in reforms (Gourinchas& Jeanne, 2002). The non-oil industrial sector of an economy is often regarded as the engine of growth and economic development largely due to its pivotal role in broadening the productive base of the economy, enhancing its revenue earning capacity, reducing the growth of unemployment and poverty as well as checking rural-to-urban migration. The non-oil industrial sector, according to the Central Bank of Nigeria (2012), consists of solid minerals (including coal mining, metal ores, quarrying and other mining activities) and manufacturing (including oil refining, cement production, food beverages and tobacco; textiles, apparel and footwear; wood and wood products; pulp, paper and publishing; non-metallic products; domestic/industrial plastic and rubber; electrical and electronics; basic metal, iron and steel; motor vehicle and miscellaneous assembly. The manufacturing sub-sector consists of large, medium, small and micro enterprises. Inability of large-scale industrialization policy to propel the growth of the industrial sector in Nigeria informed the policy shift to small-scale industrialization policy. Small scale enterprises presently maintain a very strong presence in the economy, playing a leading role in the industrial development of the country (Okafor, 2000). The sub-sector is performing at sub-optimal levels, contributing less than an annual average of 4.0 per cent of the sector’s contribution to GDP over the period 1981-2013 (Central Bank of Nigeria, 2013).For instance, between 1981 and 2012,manufacturing posted its highest contribution of 38.44 per cent to sectoral share of GDP (49.70per cent) in 1983. By 2012, contribution from manufacturing to industrial sector output (39.03 percent) stood at a paltry 1.88 per cent (Central Bank of Nigeria, 2012). The performance of the solid minerals sub-sector suggests grossly under-exploitation or rather outright neglect. The sub-sector was barely able to contribute just over 1.0 per cent to sectoral output between 1981 and 1984. Between 1985 and 2012, solid minerals contributed less than annual average of 1.0 per cent to non-oil industrial share of national output. The sub-optimal performance of the sub-sector has been a source of concern because of its immense potentials as a major foreign exchange earner for the economy. According to Sanusi (2011), prior to the discovery of oil, sold minerals like coal and tin were major items of export for the country. Overall, between 1981 and 1986, non-oil industrial output stood at an annual average of about 48.58 per cent of the total output of the economy. Over the 28-year period (1986-2013), the performance of the sub-sector rather than be enhanced, dropped to about 45.15 per cent of GDP (Central Bank of Nigeria, 2012). The declining contribution of the non-oil industrial sector, especially the sub-optimal performance of manufacturing and solid minerals, to national output is an issue of serious concern to the authorities in Nigeria and has continued to engage the attention of academics and other stakeholders. The question at this juncture therefore is, what has been the trend of development in the non-oil industrial sector and to what extent can we link such development to adoption of trade openness measures? 1.2 Statement of the Problem Nigeria experienced two distinct trade regimes in the past, the controlled trade and the open trade. The philosophy of controlled trade regime embodied a regime of regulation consisting of both direct and indirect instruments of control in the conduct of external trade and payments. The basic reasons for controlled regime is to achieve efficiency, stability and firmness in the face of market failure (Olomola, 1995), as the condition for competitive equilibrium is not satisfied. The proponents of the open regime often argue that openness enhance the standard of living and prosperity to the participating countries. In Nigeria, over the last three decades, foreign trade and cross-border movement of technology, labour and capital have been massive and irresistible. In recent years, the negative pressure which the volatile capital market of the advanced capitalist economies exerts on the developing countries has given rise to counter opinion which supports the negative aspects of openness and questions are being asked as to whether developing countries actually share in its benefits. It is believed by most writers (Fosu, 1996; Thornton, 1996; Wörz, 2005) that export of goods and services has a positive impact on the growth of an economy. This implies that growth in export will bring about growth in the economy. In other words, export drives the economy. This is what the classical school of thought regarded as export-led-growth hypothesis. Other writers (Lancaster, 1980; Krugman, 1984; Henriques and Sadorsky 1996; Al-Yousif 1999 ;) are of the opinion that it is economic growth that brings about increase in export of goods and services and not the other way round. This however is in line with growth-led-export hypothesis which believes that the growth in the economy will bring about knowledge and technological development in various sectors of the economy and will lead to increase in export of goods and services. Meanwhile, many others believe that there is a feedback relationship between export and economic growth (Helpman&Krugman, 1985; Dutt&Ghosh, 1994; Thornton 1996; Shan & Sun 1998 ;). They argue that exports may arise from the economies of scale effects of economic growth. At the same time, export expansion may propel further cost reductions leading to efficiency gains, and by extension, leading to economic growth. From the forgoing, it is obvious that there is no conclusive evidence or literature on how export affects the growth of an economy. On this note, one wonders the extent at which export has affected the growth of Nigerian economy as most of the literatures on this subject matter were very scanty in Nigeria. Oladipo (1998) extended the Ekpo and Egwaikhide (1994) model. He measured the degree of openness as the ratio of total trade (export + import) to GDP and as the ratio of export to GDP. Based on a sample period of 27 years (1970 to 1996), Nigerian quarterly data, the results showed that when the export/GDP ratio was used as a measure of openness, it correlated positively with GDP growth. But, the conventional broad measure (import plus export) to GDP indicated a negative relationship.  Considering the fact that there exist mixed findings amongst various researchers on this subject matter, the problem therefore lies on the adoption of a policy mix that will increase export in Nigeria since there is no agreement as to how export affects economic growth. This work seeks to provide solution to this problem by not only looking at the impact of trade openness on the non-oil sector of the Nigerian economy but by taking a particular look at the contribution of different trade component.