EMPIRICAL TEST OF THE HECKSCHER-OHLIN THEORY BETWEEN NIGERIA AND USA IN 2012

ABSTRACT

This study was carried out to test empirically if Nigeria’s pattern of production and trade is consistent with the Heckscher-Ohlin framework. It was necessitated by the fact that Nigeria is abundantly endowed with labour resources, fertile land, and good climatic conditions among others. In addition, there have been varying results among different existing studies of empirical evidence of the Heckscher-Ohlin framework in different countries of the world. Most of these studies showed that their country’s patterns of production and trade were not consistent with the Heckscher-Ohlin framework. These include Tatemita and Khimara (1959) in Japan and Lenotief (1951) in USA. Moreover, a similar result of Heckscher-Ohlin framework was obtained by Bharawaj (1962) in India. The data for this study were generated from secondary sources such as the National Bureau of Statistics and Central Bank of Nigeria publications. The data were grouped into nine sectors, namely agricultural sector, manufacturing sector, services, mining, trade, export, import, consumption and electricity, which formed the input-output table. The researcher adopted Leontief technique in the analysis of the data collected. An uninteresting outcome of the analysis is that Nigeria’s exports to USA were relatively capital intensive in their production even though Nigeria is scarcely endowed with capital. That is, Nigeria used more capital per worker than labour in the production of her merchandize exports. Thus, Nigeria’s major exports to USA were not produced with relatively abundantly endowed labour resources. Therefore, the empirical study of the pattern of production and trade in Nigeria are not consistent with the predictions of Heckscher-Ohlin, because it was found that Nigeria’s major exports to the USA were produced by the intensive use of relatively scarce capital resources. A key policy implication from the study is that Nigeria should shift her pattern of production and trade from capital intensive oil production to labour intensive agricultural production as capital is a scarce resource and costly in Nigeria. In all, Nigeria should make intensive use of her relatively abundantly endowed labour resources, fertile soils and favourable climatic conditions for agricultural production such as cocoa, palm oil, rubber  for domestic consumption and export. Furthermore, most agricultural products such as cocoa, rubber, palm products cannot be produced easily by the intensive use of capital resources which is also scarce in Nigeria but by the use of intensive labour resources which is abundant in Nigeria. This is because, they are ranked to be more labour intensive than capital.