ABSTRACT

This study assesses how international trade flows affect employment in Nigeria’s industrial sector. It examines the extent to which trade expansion has influenced industrial sector employment and how net exports affect aggregate labour demand in that sector. Data were drawn mainly from the Central Bank of Nigeria statistical bulletins and the World Bank’s economic indicators for Nigeria, and estimation was carried out within a vector error correction model. The results show that trade expansion has a negative and significant effect on industrial sector employment, whereas international trade flows taken on their own have no significant effect. Political uncertainty, captured by violence and the tendency toward changes of government, exerts a large negative effect on industrial employment. Gross fixed capital formation, foreign private investment, the real interest rate and the lagged long-run adjustment term are also significant. The findings imply that Nigeria must make its external economic relations more beneficial. This requires broadening the base of domestic production and reducing import volumes, so as to correct the adverse link between trade flows and industrial employment and to narrow the persistent trade imbalance.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Trade has been central to the economic integration and development of many countries in recent decades. This process of integration, commonly called globalisation, shows up in greater cross-border trade, migration and investment. Globalisation can be understood as a rise in interaction across national borders in economic cooperation, technology, personal contact and political engagement. Of its many dimensions, the two with the greatest consequences for labour markets are the cross-border movement of final goods and services and the cross-border flow of production inputs, namely labour, capital and technology (Goldberg & Pavcnik, 2007; Lee & Vivarelli, 2006). In Nigeria the trade dimension has been driven partly by regional and multilateral agreements aimed at liberalisation.

Trade liberalisation is meant to promote exports and productivity by letting countries exploit comparative advantage, and by exposing domestic firms to foreign competition, improved technology and economies of scale. Proponents argue that aligning domestic prices with world prices can create jobs, particularly in industry, by raising import capacity, reducing the forced idleness of resources, removing allocative distortions and monopoly rents, and allowing a better use of resources. Cross-country evidence that open economies tend to grow faster is often cited in support (Dollar & Kraay, 2004; Wacziarg & Welch, 2008).

The link between trade and employment has a long theoretical history rooted in the Heckscher–Ohlin framework (Ohlin, 1933). Under its full-employment assumption, trade reallocates labour across sectors without changing the aggregate level of employment, so trade-related unemployment does not arise in the model. The Stolper–Samuelson result adds that trade changes the returns to factors of production and therefore the sectoral distribution of jobs (Stolper & Samuelson, 1941). Nigeria, however, like many developing countries, fits the dual-economy description of unlimited surplus labour (Lewis, 1954), and in such economies trade has real implications for employment. Empirical work on developing countries accordingly finds that the employment effects of liberalisation are uncertain and depend on a country’s sectoral structure and capacity to adjust (Goldberg & Pavcnik, 2007; Lee & Vivarelli, 2006).

Nigeria has experimented with two broad trade regimes: a restricted regime and a liberalised, open regime. The restricted regime relied on direct and indirect controls over foreign trade and payments, justified by the aim of correcting market failure and building domestic capacity. Advocates of openness counter that it improves a country’s growth prospects (Wacziarg & Welch, 2008). In place of simple restriction, the government has also tried to diversify the export base away from oil. Export-promotion measures offered incentives for non-oil exports, especially agricultural products and labour-intensive manufactures, in the expectation of raising export performance and employment. Evidence from the Nigerian labour market is less encouraging. Asaleye et al. (2021), applying a vector error correction model and a structural vector autoregression, found that trade openness in practice had adverse effects on employment and wages in both agriculture and manufacturing. Odeleye (2016) similarly reported that openness in Nigeria was associated with job losses in manufacturing over 1980 to 2013, although manufacturing output itself had a positive effect on sectoral employment.

In addition, the volatility of international capital markets and the pressure that advanced economies place on developing ones have strengthened the case of those who stress the negative aspects of openness and who ask whether developing countries really share in its gains. Whether the growth of international trade has significantly affected employment in Nigeria therefore remains a question of considerable relevance, and it is the question this study addresses.

1.2 Statement of the Problem

The literature gives conflicting accounts of how international trade flows affect employment. One view holds that rising imports reduce employment by weakening demand for domestic output, and a related view holds that imports displace jobs by driving low-productivity firms out of business through import competition (Autor et al., 2013). Against this, a positive employment effect is plausible where a large share of imports consists of labour-intensive inputs. Likewise, countries whose exports are growing quickly might experience faster job creation, which implies a positive correlation between export performance and employment.

Nigeria’s economy is heavily dependent on oil for government revenue and export earnings, which exposes it to the resource curse and the Dutch disease (Corden & Neary, 1982; Sachs & Warner, 2001). Intensive exploitation of crude oil can appreciate the real exchange rate, making non-oil exports more expensive and less competitive internationally (Corden, 1984). Evidence of such effects in Nigeria has been documented from the oil booms of the 1970s (Struthers, 1990) through to more recent work on the interaction between oil prices, the exchange rate and manufacturing performance (Omolade & Ngalawa, 2018). The loss of tradable-sector competitiveness may in turn reduce traditional exports and, with them, industrial sector employment, which would make the relationship between trade flows and employment negative.

The labour market outcomes are consistent with this concern. Over several decades Nigeria’s labour force and the absolute number of people in work have risen steadily, yet the share of the labour force in employment has failed to keep pace. This indicates that the economy has been unable to absorb its large surplus of labour. The labour market is also dualistic: a minority of workers hold regular formal-sector jobs, while most work in the informal sector with a large pool of surplus labour behind them. Recent official data reinforce this picture. The 2024 Nigeria Labour Force Survey reported an unemployment rate of 4.3 per cent in the second quarter of 2024, but informal employment stood at about 93 per cent and only about 14 per cent of the employed were paid employees (National Bureau of Statistics, 2024). The low headline rate therefore conceals a labour market in which formal, stable and well-paid jobs, the kind industry is expected to provide, remain scarce. Because the survey adopted a revised methodology, the recent figures are not strictly comparable with earlier series.

Many scholars attribute weak employment outcomes in developing countries to exposure to globalisation and economic liberalisation, and they stress that these processes have brought uncertain consequences for job creation (Goldberg & Pavcnik, 2007; Lee & Vivarelli, 2006). Even so, the Heckscher–Ohlin tradition holds that the effect of trade on aggregate manufacturing employment cannot be predicted a priori for either industrialised or developing economies. What can be said is that the likelihood of a net employment gain is higher in developing countries, because export growth raises the employment elasticity of manufacturing, eases the foreign-exchange constraint and may attract capital inflows from developed economies.

The Nigerian empirical literature has not resolved the matter. Most studies concentrate on trade openness and aggregate growth, and the studies that address labour markets reach divergent conclusions across sectors and periods (Asaleye et al., 2021; Odeleye, 2016). Recent work also observes that research on Nigeria still has little to say about how trade patterns relate to industrialisation and industrial employment (Osisanwo, 2026). Employment growth matters beyond the labour market itself, because rising labour incomes expand domestic demand, sustain GDP growth and reduce dependence on uncertain foreign markets. A study of the effect of trade flows on industrial sector employment in Nigeria is therefore needed. The following research questions guide it.

1.3 Research Questions

1. To what extent has the changes in trade expansion impacted on labour demand in industrial sector of Nigeria economy?
2. Does increase in net-export have a positive impact on industrial sector labour demand in Nigeria?
3. Is there any causal relationship between trade flows and the changes in industrial sector employment rate in Nigeria?

1.4 Objectives of the Study

With the research questions presented above, the following specific objectives will be examined in this study. Thus, the study will:

1. evaluate the extent in which trade expansion has impacted on the industrial sector employment in Nigeria;
2. examine the impact of net-export on aggregate labour demand of the industrial sector in Nigeria;
3. evaluate the causal links between trade flows and the changes in industrial sector employment rate in Nigeria.

1.5 Research Hypotheses

Based on the stated objectives, the following research hypotheses shall be examined:

H₀₁: Trade expansion has no significant impact on the industrial sector employment rate in Nigeria.

H₀₂: There is no significant relationship between net-export and industrial sector labour demand in Nigeria.

H₀₃: There is no significant causality relationship between trade flows and industrial sector employment in Nigeria.

1.6 Significance of the Study

This study investigates how trade flows, understood as trade expansion, affect industrial sector employment in Nigeria. The industrial sector is important for development and growth, and Nigeria’s revenue structure follows the resource-curse or Dutch-disease pattern described in the literature (Corden & Neary, 1982; Sachs & Warner, 2001). The findings should therefore offer useful guidance on how the growing volume of trade could be redirected to benefit the Nigerian economy, and industrial employment in particular. The study achieves this by examining the effect of trade expansion on both industrial labour demand and aggregate employment.

The study also matters because employment growth feeds back into economic growth. Higher labour incomes raise domestic demand, which sustains GDP growth and lessens the risks of relying excessively on uncertain foreign markets. Finally, the work provides a basis for further research on trade flows and industrial labour demand in Nigeria, an area in which evidence remains limited (Osisanwo, 2026).

1.7 Scope of the Study

The study focuses on the implications of trade openness, or trade expansion, for industrial sector employment and aggregate labour demand in Nigeria. Trade flow or trade expansion is taken here to cover the aspects of globalisation described earlier, namely the increase in cross-border movements of final goods and services and the cross-border flow of production inputs, which are labour, capital and technology. Trade openness is measured in the conventional way, as the ratio of total imports plus exports to GDP.

The industrial sector is defined as the goods-producing sector of the economy, whose firms transform raw materials into goods that they sell to consumers at a profit. Typical examples are manufacturing, agriculture and construction. In Nigeria the sector comprises five main categories of industry: mining and oil refining; agro-industry; wood processing and textiles (other industries); energy and water; and buildings and public works.

The time series used cover 1970 to 2013, a period of 43 years. Data on most economic variables in Nigeria, and especially on employment, are scarce. For industrial sector employment, the study therefore uses Industrial Relations Statistics on workers involved in trade disputes, supplemented with figures on placements arising from registered unemployed persons and from vacancies declared for lower-grade workers, professionals and executives. The real interest rate serves as a proxy for the real user cost of capital, and gross fixed capital formation is used to represent technological advancement. For the real wage rate, the study uses the average minimum wages and salaries in the major sectors of the economy (agriculture, manufacturing, building and construction, transport and communication, trade and business services, and mining and quarrying), together with average public-sector wages and salaries, all deflated by the consumer price index (CPI).

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