The liberal economic theory represents a paradigm shift for economic policy from restrictive protectionist trade regimes to freer, more open economic systems (Ekpo, 2005). Based on capitalist principles of production and exchange developed by Adam Smith in 1776, the liberal economic theory presents a situation in which nations are at liberty to specialize by the process of division of labour in what they do and have comparative advantages.
The issue of an open economy has gained interests from various quarters with the development of several theories and the attainment of empirical evidences on how economic liberalization, involving free, non-protectionist trade policies could lead to a path of an ever-increasing expansion of wealth for Nigeria. First, economic liberalization policy [through export] will result to a permanent direct minimum increase in Gross Domestic Product [GDP] Odusola and Akilo (as cited in Umoru and Eborieme, 2013). Secondly, comparative advantage will lead to increasing returns to scale and this implies lower costs per unit as output increases (Tybout 1992). Thirdly, as exposure to foreign competition rises [through export] returns to entrepreneurial effort increases too. Fourthly, a more open economy provides easy access to imported inputs (raw materials and capital goods), which embody a faster rate of technological progress and increases the size of the market facing producers and in turn raises returns to innovation and affects a country’s specialization in research-intensive production.
Finally, an open economy is the best anti-monopoly policy and the best guarantee for the maintenance of a healthy degree of free competition, Haberller (as cited in Umoru and Eborieme, 2013).
In conclusion, an open economy is a potent measure of achieving decrease in poverty and increase income per capita. Following the trail of the Asian four tigers, this move for Nigeria, has the potentials of inducing rapid economic growth performance in terms of export, GDP and increased employment opportunities. Nevertheless, such hiccups as corruption, lack of political will, and experimentation with multiple economic development strategies that do not employ the ethical standard could thwart this process of economic development, hence the need to conform to current global trends.
REFERENCE:
Ekpo, H. A. (2005). “Fiscal Theory and Policy (Selected Essays)”. Onipanu: Somaprint Limited.
Tybout, N. S. (1992), “Openness, Productivity and Growth. What Do We Really Know” .The Economic Journal 108, 383-398.
Umoru D. & Eborieme M. (2013), Trade Liberalization and Industrial Growth in Nigeria Journal of Poverty, Investment and Development (1)148
The essay is one of the winning essays in the AfricanLiberty SYPALA 2015 Essay Competition