SUMMARY
In this paper, an attempt has been made to analyse the impact of trade on economic growth both from a theoretical perspective and using econometric evidence from ECOWAS countries. A review of the classical and neoclassical theories of trade showed that international trade can stimulate economic development. First, export expansion can provide a stimulus for the greater utilization of erstwhile idle human and capital resources. Secondly, it can also provide foreign exchange for financing capital goods needed in the industrial sector.
Thirdly, export expansion can stimulate investment, especially in the export sector of the developing country. Thus, provided exports are associated with significant externalities and/or productivity spill-overs, their contribution to output growth will be very high. In general, the effect of trade on economic development will depend on many factors, especially the nature of foreign demand, domestic supply conditions, the nature and characteristics of the primary product(s), the stability of the macroeconomic environment and the existence of appropriate domestic trade policy. Indeed, it needs to be emphasized that export expansion is not a sufficient condition for economic growth and development. Export expansion will lead to growth and development only when the domestic macroeconomic policy environment is stable and trade policies are appropriate.
Next, an attempt was made to econometrically test the hypothesis of a positive relationship between trade and growth in the ECOWAS countries during the 1990-2013 period. This was done using panel data (time series of cross-country data) regression analysis. Utilizing data for the 15 ECOWAS countries, a log-linear regression equation of per capita real GDP was fitted on exports, the exchange rate, investment, human capital,
inflation and population growth. For completeness and to test the robustness of the econometric results, 4 estimators (pooled OLS, Fixed effects model, Random effects model, and Dynamic panel regression model) were utilized. All the 4 estimated regression equations had high coefficients of determination and F-statistic. In all the equations, exports, exchange rate and investment were significant determinants of per capita real income growth. Exports were consistently positively related to growth, thus confirming the hypothesis that trade has a positive impact on economic growth in the ECOWAS sub-region. Since export expansion stimulates growth, Robertson’s declaration of exports as an "engine” of growth is affirmed and validated.
The importance of trade liberalization on the Nigerian economy cannot be over-emphasized; a lot of studies and arguments have taken place over the years in order to ascertain the relationship between trade liberalization and Nigeria’s economic growth. While some have found a positive relationship or effect, others share contradictory views.
