ENVIRONMENTAL EFFICIENCY AND NIGERIA’S BILATERAL TRADE

Abstract

Despite the rise in Nigeria’s Bilateral Trade (BT) relations with her major trading partners, non-mineral exports remained below 5% of total exports during the 1996-2015 period. This reflects the fact that many countries adopt environmental standards as technical barriers to trade in response to high pollution intensive imports. While the country’s average real output increased by over 200%, carbon emission also rose by almost 150%, raising serious concern for Environmental Efficiency (EE). The implication of EE for trade has not been given adequate scholarly attention, as most studies only measured the level of EE (outcome variable), and a few others focused on the role of environmental regulation (policy variable). This study, therefore, investigated the implication of EE in Nigeria’s BT with 10 European Union (EU) and seven Asian countries, at aggregate and sectoral levelsduring the period. The Heckscher-Ohlin Trade Theory provided the framework for this study. An extended Gravity Econometric Model that captured the effect of EE on BT was explored. The EE indicator was computed using Data Envelopment Analysis (DEA). Aggregate (all products) and sectoral models were estimated using the generalised least squares and negative binomial pseudo-maximum likelihood estimators, respectively. Diagnostic tests (Wald and Bayesian information criteria) were used to determinethe robustness of the estimates. Data were sourced from the World Development Indicators and World Integrated Trade Solutions. Regression estimates were validated at α≤0.05. The implication of EE for BT is found to vary by product level (aggregate and sectoral) and by partner (EU or Asia). For aggregate models, a 1.0% improvement in EE in Nigeria raised imports from, and exports to, the EU by 1.5% and 2.9%, respectively. However, it improved only imports from Asia by 1.7%.An improvement in sources’ EE increased Nigeria’s imports from Asia, but only negligibly from the EU. At the sectoral level,an increase of 1.0% in Nigeria’s EE promoted mineral imports (by 0.8%) and exports (by 0.6%) to the EU, while the effect on trade with Asia was insignificant. A 1.0% increase in EU’s EE raised mineral imports from Nigeria by 3.3%. On the other hand, a similar increase in EE in Asia raised Nigeria’s mineral imports from the region by 1.8%.For non-mineral products, EE in Nigeria and in her partners’ economies yielded insignificant effect on BT. Further analysis of these products (agriculture and manufacturing) shows insignificant effect of EE on trade in agricultural products between Nigeria and the EU; but increased Nigeria’s imports from Asia by 0.7% in response to 1.0% improvement in EE on both sides. Moreover, the EE in Nigeria promoted manufactured exports to Asia by 0.8%, while in the EU and Asia, it produced negligible effect. Improvement in environmental efficiencysubstantially stimulates aggregate bilateral trade between Nigeria and her partners in the EU and Asia, though the effects are mixed at sectoral levels. Therefore, Nigeria must focus on the design of pollution tax and incentives that encourage firms to adopt innovation that curb environmental pollution so as to enhance competitiveness.