Rice Trade Protectionism Versus Liberalization in Nigeria: A CGE Analysis of Economic and Welfare Effects

Abstract

Nigeria’s rice trade has been characterized by intermittent shifts between protectionist and liberalization trade policies over the years and little is known about the effects of these reforms on the entire economy. Past studies on Nigeria have only assessed the policies within the partial equilibrium framework. This study uses a static computable general equilibrium model to assess the effect of protectionist policy of 80% tariff increase and liberalization policy of 5% tariff reduction on production sectors, macroeconomic aggregates and households’ welfare in Nigeria. Simulation results reveal that output in the rice and other agriculture sectors increased more, by about 1%, under the liberalized policy than protectionist policy. Manufacturing and services sector increased in labor, composite price and returns to capital by less than 1% while the same fell under the protectionist policy. Almost all macroeconomic aggregates fell under both policies but with a greater magnitude under the protectionist policy. Wage rate increased under the liberalized policy only, by less than 1%. Although rural households’ incomes increased under protectionist policy, social welfare declined under both policies but was less with the 5% reduction in tariff. Hence this policy was recommended for adoption in order to increase growth of sectors and minimize welfare losses to households.