Trade Liberalization and Performance of the Nigerian Textile Industry

Nigerian textile industry is characterized with ineffective incentives, political uncertainty, acute power shortage, poor infrastructure, smuggling and red-tape bureaucracy, among others. However, government of Nigeria in appreciation of the role of industrialization in growth process now motivates firms. This is done through various government policies and establishment of various agencies. All these policies were designed to address these problems and encourage textile industry performance with a view of diversifying the productive base of the economy and increase its output for both domestic and export earnings. These problems necessitated the need to examine the effect of trade liberalization on textile industry performance in Nigeria.

The study modified the endogenous growth model within a time series estimation techniques of Autoregressive Distributed Lagged model (ARDL). The data spanned between 1986 and 2015, while four different models were tested. Findings revealed a co-integrated relationship for all model estimated. Specifically, the effect of simple tariff rate on textile industry is negative and statistically significant in the long-run; while trade liberalization policy measure through simple tariff rate has a lag effect before it can be effective in the textile industry. In both short and long run, real effective exchange rate depreciation worsens the performance of textile industry in Nigeria. Similarly, the effect of weighted tariff rate on textile industry is negative and statistically insignificant, while short-run result evidence that trade liberalization policy measure through weighted tariff rate has a lag effect before it can impact on textile industry performance in Nigeria. Specifically, a 1.0% rise in past weighted tariff rate value (trade liberalization policy) raises the level of textile performance by about 0.99%, while the current increases in tariff rate improve the textile industry performance by 1.19% over the period of analysis, though not significant. In the long run, a 1.0% rise trade openness would decrease the level of textile industry performance by about 17.49%. Thus, factors affecting textile industry performance in the short run are simple tariff rate, exchange rate changes, trade openness and labor and capital inputs in Nigeria. Similarly, causality tests results showed unidirectional causality running from trade liberalization (both measure) to textile industry performance.

The study concluded that trade liberalization has both lag and significant effects on the performance of the Nigerian textile industry from 1986 to 2015. It was recommended that government should make concerted efforts toward providing a favorable and conducive business environment for the textile industry to strive.