1.1. BACKGROUND TO THE STUDY
In our economy today we are privileged to make use of the advanced world countries’ products having risen
from improved or advanced technologies of the world. We even eat their type of food, wear their type of cloth,
drive in their kind of cars etc. without having to do all these in their country. Also we enjoy the best of products
from neighboring countries without having to travel there to get or use it. All these are made possible by
international trade. International trade has a direct effect on the economy of any country as the country sees the
need for the exchange of ideas, products and technologies. This effect could either be positive or negative at
each given point in time.
International trade can be traced back to the need for exchange which evolved from the barter system to the
money system. International trade became popular with the advent of the colonial rule that brought their wares
and made Nigerians their middle men (Nick 2008). The classical and neo-classical economists have attaches so
much importance to international trade in an economy’s growth that they even regard it as an engine of
economic growth (Jhingan 2006) and so we can say that the performance of any economic in terms of growth
rate of output and per capita income is not only based on the domestic production and consumption activities but
it can also be based on the international transaction of goods and services. One of the major reasons why
countries engage in international trade is to obtain the goods and services which they cannot produce in the
home country or commodity which its cost of production is very high. To solve this problem, the classical
economist, David Ricardo suggested that countries should specialize on the production and exportation of goods
whose cost of production is low and import the product whose cost of production is high for the country. This is
what Ricardo referred to as ‘the theory of comparative advantage’.
From the little write up above, we can see that international trade is actually a catalyst or speed up for economic
growth and thus international trade has been of a great concern to policy makers in the country. For developing
countries like Nigeria, its participation in international trade is high as most of the essential facilities for growth
e.g. capital goods, technical know-how, raw materials are entirely imported because of inadequate domestic
supply of these goods. Increased domestic demand sure reduces the expansion of exports, thus to enhance export
capacity, improved technology must be imported which in turn raises the demand for imported goods. There is
every tendency that import would be raised far above export which would result to an unfavorable balance of
trade. Prolonged pressure on the country’s balance of payment shrinks economic growth and so appropriate
economic policy measures have to be put in place to streamline international trade for the achievement of a
desirable economic growth.
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