The Effect of Foreign Trade on Tthe Nigerian Economy Essay Example for Free

The Effect of Foreign Trade on Tthe Nigerian Economy Essay Everyday, the need for foreign trade is on the increase as the needs of man is unlimited (Adams Smith). This is visible in the rise for consumer goods and services throughout the world especially with the increase in world population of over 6 billion people. Man with his advancement in social interaction and technology is able to visualize and perceive in his mind what he desires. This was obvious with the industrial revolution where production demand increased. With the location of raw materials in different geographical zones making them ubiquitous in some areas and scarce in others, the demand for certain goods is on the increase, which gave rise to the concept of foreign trade†¦Ã¢â‚¬ ¦. . .Foreign trade exists alongside domestic trade, which has also undergone transformation from the old style of â€Å"trade by barter† to â€Å"business†. In the light of this, Nigeria as a nation participates in foreign trade. Foreign trade as defined by Longe, (2008) is the buying and selling of goods and services beyond the geographical boundaries of a country or between one country and the other. Foreign trade also referred to as international trade, can be bilateral or multilateral and involves the use of different currencies. The Economic glossary defines foreign trade as the exchange of goods and services between countries, and as such, it goes ahead to explain that the inclination for one country to trade with another is based in large part on the idea of comparative advantage†¦Ã¢â‚¬ ¦.. Foreign trade is just an extension of production, exchange and consumption of goods and services that are fundamental part of life. The Wikipedia encyclopedia defines foreign trade (international trade) as the exchange of capital, goods and services across international borders or territories. In such countries, such trade represents a significant share of the GDP. Foreign trade comprises of imports, exports, and entreports. The economic, social and political importance of foreign trade has been on the rise recently due to specialization in production. Industrialization, advanced transportation, globalization, Multinational Corporation and outsourcing are all having a major impact on the global foreign trade system. Increasing foreign trade is very important to the growth of globalization as international trade assist in bridging the gap and creates availability of goods and services to other nations. The aim of foreign trade is to increase production and to raise the standard of living of the people. Foreign trade enables citizens of a country have access and enjoy the products of another country. According to †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. reasons for foreign trade are for the following reasons; uneven distribution of natural resources due to difference in climate, division of labor and specialization, difference in economic growth rate, theory of comparative cost, availability of all types of goods, increased standard of living, large scale production and stable price. According to the theory of comparative cost, each country should concentrate on the production of those goods for which it is best suited, taking into account its natural resources, climate, labour supply, technical-know-how and the level of development. Akeem (2011) explains that foreign trade plays a vital role in restructuring economic and social attributes of countries around the world. Aids to trade includes; banking, warehousing, insurance, transportation and advertisement. According to †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. , there arises challenges in implementing foreign nations involved in foreign trade is done using exchange of currency Increase in tariff, high duty on some imported goods as well as some export goods. Exposure to risk since they are transported either through the road, air, rail and sea. 2. Poor intermodal transport network in developing countries such as Nigeria. 3. Poor government policies on trade and industrialization. 4. Corruption and unaccountability. 5. Insurgence of terror groups globally acts as a threat to foreign trade. 6. Late payment for goods which results to demurrage and high port charges. 7. Language barrier slows foreign trade. With a geographical land mass of about 923,768sqkm, Nigeria is located along the Atlantic coast line. The location of natural resources in almost every part of the country has attracted trade domestically and internationally. These resources include cash crop, food crop, solid mineral, livestock and aquatic life. During this period, the industry in existence was the extractive industry and the scale of production was minimal. There existed trade by barter, the use of cowries, and coins as the medium of exchange. Nigeria experienced foreign trade with the insurgence of the British, Portuguese etc, who explored the country and tapped our natural resources. The colonial masters journeyed into the hinterland and assisted in the construction of the early road networks and later, rail lines which connected major cities to the ports in Lagos, Port Harcourt and Calabar. These routes provided means of transportation for the export of cash crops like palm oil, cocoa, groundnut, rubber, etc to the industries in Europe and America. Between the periods of 2005 and 2010, many industries e. g. Unilver, located in Nigeria relocated to neighboring West African countries and their home base because of the numerous problems such as epileptic power supply, high tariff on import, corruption, inadequate social infrastructure and high tax rates imposed on them by the government. These factors have affected Nigeria’s foreign trade, especially with her over dependence on crude oil which was discovered in Oloibiri, Bayelsa State, formerly Rivers.