Discourse bothering on issues relating to trade among nations abounds in economic literature. Many of these expositions (covering from the essence of trade between nations, the benefits of such exchanges, their nature, to their composition) have passed the test of time. Mercantilism (1500–1800) is one of these theories which, though with the passage of time, have retained some relevance in modern thinking and practice, in some modified forms. It is a trade theory that favours exportation against importation. Therefore, in practice, most countries adopt the tenets of this theory where they tend to favour exportation and discouraging importation through the use of protectionist trade policies aimed at generating trade surplus through accumulation of reserve. Their perception of trade as a zero-sum game together with other flaws was questioned thereby giving rise to the Adam Smith’s Absolute Advantage Theory of 1776, which itself was refined by the David Ricardo (1817) Theory of Comparative Advantage which centred on relative opportunity cost of production rather than absolute cost as Smith had advanced; and the Heckscher-Ohlin Factor Endowment Theory (the celebrated modern theory) of free trade doctrine with its focus on the role of endowment of factor of production (whether it is capital-abundant or labour-abundant) as basis for international trade. The general treaty of these country-based theories is that, countries stand to gain from engagement in bilateral or multilateral exchanges as such they should create conditions that will foster such interactions. And by extension, Nigeria too stands to benefit from trade with other African countries and the world at general by keeping to the principles of these theories.
At the level of inter-industry trade (i.e., the firm-based trade), we have the Country Similarity Theory by Steffan Linder developed in 1961; the Product Life Cycle Theory developed in the 1960s by Raymond Vernon; Paul Krugman and Kelvin Lancaster Global Strategic Rivalry Theory of the 1980s; and the Porter’s National Competitive Advantage Theory in 1990. This set of theories analysed international trade at the level of interaction that occurs between the firms of countries and not the whole country directly put in perspective.
In terms of economic integration, the Viner’s Theory of Customs Unions, which came in place in 1950, argued that regional trade agreements did not necessarily result to trade gains in spite of elimination of trade barriers (Lipsey, 2006). The Viner's theory of economic integration concludes that regional agreements can only be beneficial to partner countries if it leads to trade in commodities which were not previously traded (trade creation); but detrimental, for both partner countries and the rest of the world as well, if the union results to shifting locus of production from low-cost third country to higher-cost partner country. Another theoretical perspective to economic integration is the Balassa Dynamic Theory of Economic Integration of 1962, which questioned the static nature of Viner’s theory. This sees economic integration as having dynamic effects on member states in terms of large-scale economies, technological change, as well as the impact of integration on market structure and competition, productivity growth, risk and uncertainty, and investment activity (Hosny, 2013). This portends that, countries stand to gain the aforementioned from economic integrations.
Other studies have classified the static effects and developments of the theory of economic integration so as Old Regionalism and the dynamic effects as New Regionalism. Whereas the old regionalism is characterized by import substitution, planned allocation of resources, governments’ leadership, and mainly industrial products; new regionalism emphasizes export orientation, market allocation of resources, private firms’ leadership, all goods, services and investment (Hosny, 2013; & Marinov, 2014).
Another international trade (integration) theory is the Received Theory that came from Harry Johnson’s works of 1953 and 1954. According to Ethier (2006, p.2) the central premise of the theory is that “trade agreements arise solely because countries with market power are concerned, to at least some degree, with the fact that trade barriers, imposed for whatever reason, can move the terms of trade in their favor, shifting real income there from the rest of the world”. So, there is tendency that an economic integration may be for the benefit of countries with the market-power, while those with weak or no market-power derives no benefits.
At the politico-economic angle, Maggi and Rodríguez-Clare (1998) put forth a Political-Economy Theory of Trade Agreements. This theory views politics as being the main fulcrum of any trade agreements by which governments use trade agreements to deal with a time-inconsistency problem (which may emerge in a small-open economy when capital fixed in the short run but mobile in the long run) in their interaction with domestic lobbies. The displays of political powers through trade ties to influence and commandeer of exploit resources from other nations and sanction erring member of an economic integration clearly validate this theory. The use of such sanctions to punish member for non-economic but rather political actions of theirs points to the fact that, an economic integration was put in place as means of political controls.
From these trade theories, it is clear that countries stand to gain from international trade, hence the benefits promised by AfCFTA to her members may hold true, ceteris paribus. However, the theories of economic integration present dual effects with equal-probable state of occurrence. It now behooves on participating members to critically evaluate the conditions and put strategies in place to derive the positive effect. This is why this work seek to, in part, achieve for Nigeria.
The assertions of trade and integration theorists have stimulated a large number of empirical and theoretical studies on the impact of trade and integration on a country’s economic growth/development especially of developing countries that are freely open to these international interactions. Such studies include those by Vamvakidis (1998); De Benedictis and Tajoli (2007); Bikker (2009); Jato and Gbashima (2009); Jato (2015); Kalu and Agodi (2015); Tumwebaze and Ijjo (2015); Nguyen, Bui, and Vo (2016); Afolabi, Danladi and Azeez (2017); and Karakaş and Karakaş (2019). For instance, Vamvakidis (1998) in his study of regional integration and economic growth concludes that countries with open, large, and more developed neighboring economies grow faster than those with closed, smaller, and less developed neighboring economies. However, result from analysis of the impact of five regional trade agreements during the 1970s and 1980s finds that none led to faster growth. The main reason seems to be that most of these agreements were among small, closed, and developing economies.
Kalu and Agodi (2015) examined if trade openness has any impact on Nigeria using the Autoregressive Conditional Heteroscedasticity (ARCH), Generalized Autoregressive Conditional Heteroscedasticity (GARCH) and Pairwise-Granger causality methodology, and found that trade openness has a significant impact on economic growth. The pairwise Granger causality test showed a unidirectional causality between economic growth and trade openness. De Benedictis and Tajoli (2007) looked at the similarity of the trade structures toward the EU market between four CEECs and the EU15 by examining how the export composition of a country has changed over time and how the export composition has changed with respect to the EU15 export composition. Their findings show that processed trade is crucial in explaining changes in the overall structure of exports of transition countries, and that greater economic integration in terms of trade flows and processing trade does not always lead to greater export similarity.
Nguyen et al. (2016) examined the relationship between economic integration and growth in Vietnam using the Autoregressive Distributed Lag (ARDL) and the Granger causality test focusing on three types of economic integration – overall integration, financial integration, and trade integration –from 1986 to 2015. Their results revealed that, considered holistically, economic integration had positive impacts on economic growth, but financial integration was found to generate economic growth the most. Tumwebaze and Ijjo (2015) found no significant empirical support for a positive growth impact from economic integration on the COMESA region. This was through their study of the contribution of COMESA integration to economic growth in the region using instrumental variables GMM regression in the framework of a cross-country growth model using the 1980–2010 annual panel dataset. It was revealed rather that growth in capital stock, population, world GDP and the level of openness to international trade turned out to be the most robust drivers of growth in the COMESA region over the period.
The study by Afolabi et al. (2017) is one of the studies in the negative, which revealed that international trade is negatively insignificant to the growth process of the Nigerian Economy. In another study by Karakaş and Karakaş (2019), where the economic growth effects of economic integration was investigated in terms of the Turkish economy integration to the European Union (EU) and Shanghai Cooperation Organization (SCO). It was found that trading with both blocs influenced Turkey’s economic growth with all the variables showing a meaningful relationship in both the short and long term. They concluded that economic growth and foreign trade have a bi-directional causality between the two trading blocks.