Is Globalisation Capable Of Raising Living Standard, Through International Trade In Nigeria?

Mahe Shehu

“Globalization is one of the most contested topics in the social sciences. Observers and theorist of globalization have variously argued that the rapid increase in cross – border economic, social, technological and cultural exchanges is civilizing, destructive or feeble”. Intuitively, globalization is a process fuelled by, and resulting in, increasing cross – border flows of goods, services, money, people, information, and culture.

The world Trade Organization (WTO) is undoubtedly an agent in the process of globalization. There are of course, greatly differing views on the nature of it, given that the process of modernization and globalization have varying impacts on communities and individuals.

Economic activity fluctuates in business cycles in every society with contraction and expansions representing short – term changes in a society. But, because of the absence of good institutions (rule of law, organizational entities, procedural devices and regulatory frameworks, and bad leadership, the duration of economic contractions in Nigeria has always been greater than that of economic expansion.

TRADE AND THE DISTRIBUTION OF INCOME WITHIN THE GLOBAL ECONOMY

Trade more than likely produces a convergence of relative prices. Changes in relative prices, in turn, have strong effect on the relative earnings of labor and land. A rise in the price of cloth raises the purchasing power of labor in terms of both goods while lowering the purchasing power of land in terms of both goods. A rise in the price of food has the reverse effect. Thus International Trade has a powerful effect on income distribution.

It is pertinent to note that the resources which a country has relatively large supply is termed as the abundant factor in that country. Similarly the resource of which it has a relatively small supply is known as the scarce factor. The Heckscher – Ohlin Theorem states “countries tend to export the goods whose production is intensive in factors with which they are abundantly endowed”.

To better understand and appreciate the role of resource difference in trade analysis in which in most cases resources differences is the only source of trade. “The Heckscher-Ohlin model shows that comparative advantage is influence by the interaction between nations resources (relative abundance of factors of production) and technology of production (which influences the relative intensity with which different factors of production are used in the production of different goods.

Trade theorist argued that interaction between trade costs and the agglomeration of economic activity helps to explain why some countries grow faster than others. This approach draws heavily on the cumulative causation mechanisms of demand and supply linkages. The demand linkage rests on market size issues. The cost linkage on the other hand works by encouraging firms to locate near suppliers but since firms also supply other firms, moving to a low cost for intermediates tends to lower the cost of intermediates in that location even further. This is call an agglomeration force.

Financial institutions play a major role in determining the availability of investment funds, which is regarded as the driving force behind country’s growth disparities. Due to economic stagnation in most developing countries, financial institutions tend to be very reluctant to supply credit to such countries. Therefore credit shortages in depressed countries are likely to be particularly severe if the financial sector is highly integrated because it is easier to direct capital flows to the country where confidence is high.

However, with Fitch Assigns Nigeria BB rating yesterday 30^th January, 2006 it is expected that Nigeria will be fully integrated in the global financial community, the rating would invariably attract foreign direct investment and allow Nigerian companies to borrow money in the International Market by way of issuing bonds. Veronica Kalema, Director at Fitch’s Sovereign Rating Group in London said “ The current administration’s ambitious reform programme and the regularization of relation with Paris Club Creditors mark an important step in Nigeria’s rehabilitation with International Financial Community. Sharp reductions in the government’s debt service burden will free public resources necessary to tackle the major economic and social challenges that Nigeria faces”.

Globalization, like European integration, offers amazing opportunities. Just consider these examples: Netipo, an investment bank based in Frankfurt, in 2002 placed a share issue for fortunecity.com, an American cyber-community, on German’s high-tech stock market, the Neuer Mark. Volks wagen makes cars in Mexico. Deuth Bank now owns America’s Bankers Trust. Daimler Benz has snapped up America’s Chrysler, as a stake in Japans Mitsubishi motors. And yes, Mannesmann has been over taken by Britain’s Vodafone Air touch.

This surge in cross-border trade investment is helping to raise living standards across the world as new technologist spread faster, foreign competition keeps domestic firms on their toes and consumers reap the benefits of an ever wider choice of cheap imports. Of course, greater interdependence does make economies and people more vulnerable to events across the globe. Daimler Chrysler will take a bigger hit if America’s economy turn sour than the old daimler Benz would have done. Yet by the same token, Daimler Chrysler’s German workers and shareholders

are now benefiting more from America’s unprecedented economic boom than they would otherwise have done.

“Globalization increases people’s freedom to shape their identities, independent of those of their ancestors”, as John Mickletthwaith and Adrian Wooldridge say in their book on globalization, “A future perfect”.

NIGERIA AND THE REALITY OF 21^ST CENTURY.

At the crux of globalization is economic integration through cross – border investment, trade and labour movement. It is essentially the growth of international capitalism, driven by market forces. Globalization has undoubtedly created unprecedented opportunities for wealth creation and for the material betterment of human. The revolution in communication technology is shrinking the world, producing new and easier accessible opportunities for the transfer of knowledge and the development of skills – based industries.

Though the concern for many people in developing countries about reducing barriers to trade and obstacles to the free follow of capital are understandable, Nigeria stands to gain from deeper integration into the international economic system. The corollary of this is further marginalisation from the global economic systems spells worsening poverty for the country.

Nigeria and any other African country require foreign investment to develop their economies that are deficient in financial and managerial capital. Internally available resources are grossly inadequate to meet the needs of economic development and poverty reduction, even in the unlikely absence of corruption and resource management.

Through interaction with advanced wealth creating nations Nigeria may learn about the nature of wealth and how to create. The absence of a wealth – creation culture is the major obstacle to Nigeria realizing the dream of industrialization.

Many liberal opponents of globalization harbour disdain for large – scale productive activities and dismiss notions like efficiency, productivity and growth as dogmas of greedy capitalist. But it is difficult to see how Nigerian economy can grow rapidly without striving to become more efficient producers. Similarly, it is hard to fathom how Nigeria can eradicate poverty without accelerated economic growth. By striving to keep pace with the tempo of globalization Nigeria is more likely to develop the production culture it needed to attain it’s people’s dream of modern material prosperity. According to Daron Acemoglu, good “institutions not only affect the economic prospects of a nation, “they also “affect the size of the social pie how it is distributed and the distribution of income among individuals and groups in society”. All these would help to keep down trodden group of Nigeria’s population from poverty and misery, and other situations that would harm the economic well being of the citizens and the nation as a whole.

Indeed riding the globalization train does not require Nigeria to allow big corporations ride rough shots over it. As with governments, the activities of big business need to be closely monitored and their excesses challenged. Globalization does not mean that Nigeria must follow blindly the tenants of free-market economics nor that it remove all import restrictions, free trade is an ideal that is yet to be practice by even its staunch western advocates. However, in formulating economic policies Nigerian government should endeavor to maximize the possible gains from globalization.

KEY ISSUES OF FOREIGN DITRECT INVESTMENT: A POLICY DIMENSION

Foreign Direct Investment (FDI) is generally considered as a driving force in the integration of developing countries into the globalization process that characterizes the world economy. And since most developing countries are eager to receive FDI inflows has heated up in recent years precipitating far-reaching concessions and protection for investors as incentives (Sigh, 2001). These incentives, which are mostly fiscal and financial, are part of the cost of attracting FDI, and more than likely many imply the diversion of resources from other socially desirable activities (e.g. education, housing, health etc).

Developing countries are engaged in this kind of derive because government take it for granted that FDI is a key instrument to faster growth and competitiveness. However, these countries have generally received mostly resources seeking FDI in extractive industry like mining and Oil exploration and Production, Nigeria being a clear example of this category. Besides the internal forces, which have operated in this direction, pressures from international financial organizations (like IMF and world Bank) as well as the increasing enforcement of multilateral trade disciplines within the WTO have been important determinant for this policy direction as well.

To some extent, International Trade can make a decisive contribution to sustainable development by promoting the equitable integration of Nigeria into the global economy, which can significantly boost economic growth. However, Trade and Investment liberalization will provide maximum benefit to Nigeria when it is operating within a sound supporting domestic policy framework and pursued in tandem with political will.

Well-managed trade liberalization can be a key factor in enhancing welfare by increasing the efficiency of the economy. There is no “good” or “bad” FDI outside national policy. In other words, it is only in relation to national policy that FDI can be described as good or bad. All FDI is inherently problematic such investments do not come as a matter of charity, they come to make profits, to make use of local resources, to take advantage of cheap or skilled labour, or to capture the local market against other foreign competitors. Indeed even against local enterprises, foreign direct investments do not transfer technology for the love of it; they do so, if they do it all, in order to control production of the market (Tandom, 2002a).

In Nigeria liberalization has significantly opened the economy but has failed to alter the structure of production or help realized efficiency gains or redress the over-dependence on oil as the main revenue earner for the economy.