Growth rate of total asset fall from
The corrective mechanism kicks in and real income falls to pre-devaluation levels or worse thus wiping out any illusionary sense of new affluence.
This was in fact the experience in Nigeria and explains the failure to promote non-oil primary exports. There is a second consequence of the massive devaluation of the naira that is often missed.
Prior to devaluation, foreign exchange management had taken the form of rationing, a tortuous and opaque bureaucratic process that was admittedly fraught with corruption and arbitrage.
We all have memories of the import license regime, an avenue to riches for some ministers with the exception of a brief period in when general sanity was enforced in the Nigerian polity. One of the key arguments in favour of market allocation and devaluation was that it put an end to the obnoxious import license regime.
What we hear little of is that it created a new regime of hyper corruption. The monetisation of oil resources in Thesis on banks in ghana era of devaluation placed huge amounts of local currency in the control of government officials. The point here is that quite apart from the theoretical limitations of this policy, the fact that the successive governments responsible for its implementation from date have been plagued by endemic corruption contributed in no small measure to its failure to achieve set objectives.
The net effect of these policies was to destroy the decades long import-substitution strategy of industrialization pursued by the Nigerian government.
The strategy was itself consistent with the recognition of the bleak prospects of long-term terms of trade for primary exports mentioned above.
Also, it represented a recognition of the need to protect and nurture domestic industry as a basis for re-entering the world market on a more competitive footing.
This point has been studied and elaborated on in detail by Joseph Stiglitz. By the late 70s and early 80s Nigeria could boast of established industries in textiles manufacturing, mining and quarrying, Steel and personal care.
Misguided liberalization meant the collapse of these industries through competition from superior and cheaper import substitutes, retrenchment of workers and creation of idle capacity.
The importation of goods hitherto produced locally meant a further deterioration in the current account position, thus an exacerbation of the ostensible problem that is being solved. As noted by Obadan,  many of these imports are second-hand, used, sub-standard or even fake and all this has increased pressure on foreign exchange demand and the exchange rate.
This is why even today the government comes up with policies of selective banning of imports and selective protection without accepting the fundamental error in jettisoning a sound development strategy. Critiquing a Contrary View The view presented above, on the adverse consequences of liberalization on the industrial potential of less developed countries, is not shared by all economists.
At the latest Annual Conference of the Nigerian Economic Society, two economists from the University of Lagos presented what purports to be empirical evidence of positive correlation between trade liberalization and industrial growth.
Data is then presented for the various periods and inferences drawn. I will show here that these inferences were misleading. Adebiyi and Dauda write: The Trade liberalization embarked upon during SAP engendered expansion in industrial production.
This was maintained during the subsequent periods. It becomes evident that SAP reforms resulted in a short-term advantage for the manufacturing subsector as the index of manufacturing production rose substantially from This however declined during but rose during the subsequent period.
Now let us consider the evidence. We will first of all examine the data for relative, as opposed to absolute changes from regime to regime. The index increased by Growth rates in regimes 5 and 6 were —5.Switch to FNB Business Apply now!
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