Analysis of Nigeria’s Intra-and Inter-industry Trade in

Energy Products

Damilola Felix Arawomo

Department of EconomicsUniversity of Ibadan, Ibadan,

Nigeriadamfelara@yahoo.com

INTRODUCTIONAmong the several advantages of international trade:• major source of revenue• Exchange rate• Increase in international ties• Source of factor inputs

International trade has been broadly categorized into two: • inter-industry trade • intra-industry trade.

Intra-industry trade:• stimulates innovation and exploits economies of scale

(Ruffin, 2002)• reduces the demands for protection

Objectives of the Study

to examine the extent of both inter and intra –industry trade in energy products in Nigeria with her major

trade partners

to analyse the determinants of the two types of trade

BACKGROUND OF THE STUDY

2.2 Destinations of Oil Imports and Exports

United States of America has been the highest importing market for Nigeria’s oil exports for several decades

It must also be noted that India and Brazil have displaced the European countries as receivers Nigeria’s oil exports, although

there are still 5 European countries among the highest importing markets for Nigeria oil export

2.1 Trade in Energy Products

Nigeria’s imports of oil products in the recent time; it has increased from N0.2 billion in 1980 to over N3 trillion in

2011.

The share of oil in total exports of Nigeria was 95.8 per cent in 1980, although it declined to 89.1 in 2011

Table 2.1 Nigeria’ Exports of Goods and Services to the World (N Billion)

Billion N Percentage of Total

Year Oil Non-Oil Total Oil Non-Oil Total

1980 13.6 0.6 14.2 95.8 4.2 100.0

1990 106.6 3.3 109.9 97.0 3 100.02000 1920.9 24.8 1945.7 98.7 1.3 100.02005 7140.6 106.0 7246.5 98.5 1.5 100.0

2006 7191.1 133.6 7324.7 98.2 1.8 100.0

2007 8110.5 199.3 8309.8 97.6 2.4 100.0

2008 9913.7 247.8 10161.5 97.6 2.4 100.0

2009 8067.2 289.2 8356.4 96.5 3.5 100.0

2010 10157.3 397.8 11532.0 88.1 11.9 100.0

2011 12674.1 485.2 14231.5 89.1 10.9 100.0

Table 2.2 Nigeria’ Imports of Goods and Services from the World (N Billion)

  Billion N Percentage of Total

Year Oil Non-Oil Total Oil Non-Oil Total

1980 0.2 8.9 9.1 2.2 97.8 100.0

1990 6.1 39.6 45.7 13.3 86.7 100.0

2000 220.8 764.2 985.0 22.4 77.6 100.0

2005 797.3 2003.6 2800.9 28.5 71.5 100.0

2006 710.7 2397.8 3108.5 22.9 77.1 100.0

2007 768.2 3143.7 3912.0 19.6 80.4 100.0

2008 1386.7 3803.1 5189.8 26.7 73.3 100.0

2009 1063.5 4039.0 5102.5 20.8 79.2 100.0

2010 1756.7 5857.7 7614.4 23.1 76.9 100.0

2011 3042.8 7195.0 10237.8 29.7 70.3 100.0

Table 2.3: Highest 10 Importing Markets for Nigeria’s Energy Products.

Importers 2001 2006 2009 2011United States 40.6 45.5 29.8 37.5India 11.6 9.1 10.4 11Brazil 5.8 4.3 8.7 7.8Netherlands 2.0 2.6 2.8 4.7France 6.4 5.6 5.4 3.9Spain 6.5 8.1 4.8 3.6Equatorial Guinea 0.0 0.0 7.4 3.5Canada 2.0 3.9 3.9 3.3Italy 4.7 2.4 3.7 3South Africa 1.1 1.8 3.7 2.4Others 19.2 16.6 19.4 19.3World 100 100 100 100

Table 2.4: Highest 10 Supplying Markets for Nigeria’s Energy Products

Exporters 2001 2006 2009 2011United States 22.5 9.6 9.8 18.9France 4.9 5.5 9.4 13.7United Arab Emirates 0.0 0.2 3.6 11.5India 0.1 3.7 3.1 11.2Latvia 0.0 0.0 5.0 6.5United Kingdom 12.9 6.1 7.6 5.6Italy 1.4 7.4 6.0 4.1South Africa 1.5 0.8 2.1 0.6Belgium 6.7 6.1 5.0 2.8Switzerland 6.9 3.0 5.3 2.4Others 43.1 57.6 43.0 22.7World 100 100 100 100

2.0 LITERAT

URE REVIEW

Among other studies that

have considered both inter– and intra-industry trade

are:

3.0 METHODOLOGY

• Grubel and Lloyd (1975) defined Inter-industry trade as net trade :

3.1 Measurement of Inter-industry and intra-industry trade

Si = |Xi - Mi| (1)

The groundbreaking work of Grubel and Lloyd (1975) led to the emergence of the Grubel and Lloyd index (G-L index). They calculated IIT based on the difference between the trade balance of the industry or product i, and the total trade of the same industry or product

That is intra-industry trade is measured by:

Where Xij and Mij are home country’s exports of industry i to country j and home country’s imports of industry i from country j, respectively.

(4)

•TRADE is the magnitude of the type of trade that exists between the trade partners.•GDP is the natural endowment in the host country•GPER is the per capita in the host country•GGRT is the rate of growth of the GDP•WDIST is the weighted distance between host country and the respective trade partners •REER is the real effective exchange rate of the host country•FDI is the inflow of FDI from the trading partners to the host country

Where:

3.2 Model Specification

3.3 Estimation Techniques

Panel data technique will be performed by both fixed effect and random effects models and will be compared with the pool.

In order to be able to choose between the possible estimation models, several statistical tests

will be performed.

Chow test. Breusch-Pagan, Hausman and Lagrange

Multiplier.

4.1 Extent of Intra-industry Trade in Energy Products• The computed index of inter-industry trade and intra-industry

trade in energy products for 2011 is presented in Table 4.1. • It should be reported that this same result is for each year

between the periods of 1980 to 2011. • The result show that for of the four major trade partners,

intra-industry trade in energy products did not exist between them and Nigeria. United States, France, India and South Africa

4.0 EMPIRICAL ANALYSIS

Table 4.1 (a) Index of intra –industry trade in Energy Products between Nigeria Selected Trade Partners 2011

HSCode

Product label Intra-Industry Trade  USA France India South

Africa

'2701 Coal; briquettes, ovoids & similar solid fuels manufactured from coal

0 0 0 0

'2702 Lignite w/n agglomerated, excl jet 0 0 0 0'2703 Peat (incl peat litter), w/n agglomerated 0 0 0 0'2704 Coke & semi coke of.coal, lignite, peat; retort carbon 0 0 0 0'2705 Coal gas,water gas,producer gas,other than petroleum gases 0 0 0 0'2706 Tar distilled from coal, lignite or peat & other mineral tars etc 0 0 0 0'2707 Oils & other products of the distillation of high temp coal tar

etc0 0 0 0

'2708 Pitch & pitch coke, obtained from coal tar or from other mineral tars

0 0 0 0

'2709 Crude petroleum oils 0 0 0 0'2710 Petroleum oils, not crude 0 0 0 0'2711 Petroleum gases 0 0 0 0'2712 Petroleum jelly; mineral waxes & similar products 0 0 0 0'2713 Petroleum coke, petroleum bitumen & other residues of

petroleum oils0 0 0 0

'2714 Bitumen & asphalt, natural; shale & tar sands; asphaltites & asphaltic

0 0 0 0

'2715 Bituminous mixtures from..natural asphalt, natural & petroleum bitumen

0 0 0 0

'2716 Electrical energy 0 0 0 0

Table 4.1 (b) Index of inter –industry trade in Energy Products between Nigeria Selected Trade Partners 2011

HSCode

Product label Inter-industry Trade  USA Franc

eIndia South

Africa'2701 Coal; briquettes, ovoids & similar solid fuels manufactured

from coal1 1 1 1

'2702 Lignite w/n agglomerated, excl jet 1 1 1 1'2703 Peat (incl peat litter), w/n agglomerated 1 1 1 1'2704 Coke & semi coke of.coal, lignite, peat; retort carbon 1 1 1 1'2705 Coal gas,water gas,producer gas,other than petroleum gases 1 1 1 1'2706 Tar distilled from coal, lignite or peat & other mineral tars

etc1 1 1 1

'2707 Oils & other products of the distillation of high temp coal tar etc

1 1 1 1

'2708 Pitch & pitch coke, obtained from coal tar or from other mineral tars

1 1 1 1

'2709 Crude petroleum oils 1 1 1 1'2710 Petroleum oils, not crude 1 1 1 1'2711 Petroleum gases 1 1 1 1'2712 Petroleum jelly; mineral waxes & similar products 1 1 1 1'2713 Petroleum coke, petroleum bitumen & other residues of

petroleum oils1 1 1 1

'2714 Bitumen & asphalt, natural; shale & tar sands; asphaltites & asphaltic

1 1 1 1

'2715 Bituminous mixtures from..natural asphalt, natural & petroleum bitumen

1 1 1 1

'2716 Electrical energy 1 1 1 1

As reported in Table 4.2, the Chow test confirms the appropriateness of fixed

effects model whereas the Breusch-Pagan test advocates the use of the random

effects model.As evident in Table 4.2, the resulting Hausman test statistics in the model

strongly indicate that the fixed effects model should be preferred over the

random effects model.

As regards the determinants of inter-industry trade we turn to

Table 4.2

Table 4.2: Regression Results of the Determinants of Trade in Energy Products

  Pool Panel Fixed Effect Random EffectGGRT 0.0274

(0.06)0.0165(0.05)

0.0263(0.06)

DIST 0.1754***(7.54)

-1.2674***(-5.54)

0.0261(0.31)

GDP 1.5879***(5.46)

2.0212***(8.47)

1.6328***(6.27)

GPER -1.6877***(-5.16)

2.1016***(7.93)

-1.7305***(-5.92)

REER 0.4752(0.73)

0.3994(0.78)

0.4674(0.80)

FDI -0.1153(-0.17)

0.0060**(3.01)

-0.1028(-0.17)

CONSTANT -121.727***(-6.16)

-148.60(-9.24)

-124.508***(-7.04)

R2, R2 Within 0.6142 0.7267 0.7267F 34.7 46.03 43.27Chow test 180.5 108.37 161.9Wooldridge test for autocorrelation: F (1, 32)

4.79 2.39 4.35

LR-test for heteroscedasticity:X2 (32) 422 310 398Breusch-Pagan LM test for random effect

1213 1022 1165

Hausman specification test: X2(6) 44.48 106.19 55.27No. of groups 4 4 4No. of observations 128 128 128

5.0 SUMMARY, AND CONCLUSION

Nigeria trade with United States, India, France and South Africa in

energy products showed pure inter-industry trade.

Foreign direct investment, natural endowment, and per capita income

promotes inter-industry trade in energy products between Nigeria

and the trade partners, while distance was found decline it

RECOMMENDATIONS

•The fact that Nigeria’s trade in energy products is completely inter-industry trade, suggest that she exports crude oil and imports refined. Efforts should therefore be intensified to refine all our crude oil in the country.

. •The various multinationals should be encouraged to build refineries in Nigeria

•Policies that can enhance refining Nigeria crude oil domestically should be pursed