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

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 basis  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  end  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.

High  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.

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.

4.                 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 Nigeria

1.6     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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