Impact of Free Trade Area on Trade, Revenue and Welfare in Nigeria

Abstract

This study offers an analytical evaluation of the effects of Free Trade Area (FTA) agreements on trade, revenue, and welfare in Nigeria. The study applied World-Integrated Trade Solution/Software for Market Analysis and Restrictions on Trade (WITS-SMART), anchored on a partial equilibrium model (PEM) for its simulations. The study simulated 100% tariff elimination on selected products under Harmonized System (HS)-2 classification code sourced from Trade Analysis Information Systems (TRAINS) and Common Format for Transient Data Exchange (COMTRADE). The study’s findings show that the African Continental Free Trade Area (AfCFTA) agreement will benefit Nigeria’s economy from trade creation estimated at US$8,860.419 million, including a favorable welfare gain to the value of US$740.571 million. Nevertheless, Nigeria will sustain losses in trade revenue, valued at US$6,142.061 million. The study recommends proficient revenue management and well-diversified revenue collection sources, such as improvement in Value Added Tax and Ad-Valorem duty, to cushion the effects of the revenue loss resulting from tariff elimination in the FTA.