Impact of Regional Trade Agreement on Trade and Consumer Welfare in Nigeria

Abstract

The importance of Regional Trade Agreements (RTAs) has gained more prominence in recent times given the African Continental Free Trade Area (AfCFTA) agreement which commenced in January 2021. This complements the existing Economic Community of West African States (ECOWAS) sub-RTA driven by the ECOWAS trade liberalization scheme and the protocols underlying its establishment. There have been mixed reactions by stakeholders on the impact of the existing and new RTAs especially in terms of their impact and therefore, this paper examined the trade creation, trade diversion and consumer welfare impact of RTAs in Nigeria. Quantitative impacts were obtained based on a partial equilibrium simulation tool- Software for Market Analysis and Restriction of Trade (SMART), which has an integrated database sourced from the World Trade Organization (WTO). The dataset used is for 2016 which, is the most recent available dataset for Nigeria and other African countries. The outcome of a tariff reduction simulation exercise revealed a trade creation effect of US$43.59 million or (75.71%). This largely exceeds the trade diversion effect of US$13.98 million or (24.28%). In terms of welfare, the removal of tariff barriers led to a welfare gain of US$4.09 million, wherein the industrial and agricultural sectors were found to have contributed the most to consumer’s welfare recording 73.30% and 23.27%, respectively. Therefore, the study recommends that policies that support economic integration with other African countries such as improved trade logistics infrastructure, protocols on the free movement of persons and capital, eliminating tariff and non-tariff barriers and harmonizing regulatory measures would be required to maximize the gains from an RTA.