ANALYSIS OF THE IMPACT OF TARIFFS ON ECONOMIC GROWTH IN NIGERIA (1980-2017)

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 lawend 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.53. 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 of Nigeria 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.