The Nexus between Trade Policy and Manufacturing Employment in Nigeria: A Panel Cointegrating Regression

Abstract

This paper uses firm level data to examine the impact of tariff and adoption of ECOWAS Common External Tariff (CET) on manufacturing sector employment in Nigeria. The empirical strategy is based on Pooled Mean Group (PMG), which is one of the panel cointegrating regression techniques. The findings show that tariff does not have short-run effect on manufacturing employment in Nigeria. However, in the long-run employment in manufacturing firms declines with increase in tariff rate. The decline is more in the non-exporting firms, than in the exporting firms. It is also evident that CET does not have short-run effect on manufactured employment but harms employment in the long-run. It however, enhances employment when reform is interacted with tariff. It is therefore, recommended that Nigeria should generally reduce tariff rates and avoid policy inconsistency in order to achieve the desire long-run impact. Blanket policy reform targeting at all firms in the manufacturing sector should be discouraged. Case by case analysis should always be carried out so as to identify which policy is most appropriate for each manufacturing sub-sector. Finally, it is recommended the government should always follow up trade agreements with corresponding appropriate trade policy reform so as to maximize the gains from such agreement.