The Impact of Import Substitution Policy on Import Dependency Reduction in Nigeria

Abstract

Nigeria’s quest for economic self-reliance has kept import substitution policy at the center of its trade strategy. Driven by the need to cut import dependency and promote domestic industrialization, this study evaluates the effectiveness of Nigeria’s import substitution policy between 1980 and 2024. The research aims to measure the influence of tariff rates, foreign exchange restrictions, and domestic industrial output on import dependency. Using a quantitative research design, the study analyzes secondary data from the Central Bank of Nigeria, National Bureau of Statistics, and World Bank Development Indicators. Applying multiple linear regression analysis within the framework of Dependency Theory, import dependency (as a percentage of GDP) is modeled against average tariff rates, the number of banned items, and domestic industrial output index. Results show the model explains 79.7% of the variation in import dependency (R² = 0.797). Tariff increases significantly reduce dependency (β = -0.176, p = 0.002), while foreign exchange restrictions have no measurable effect (β = 0.005, p = 0.642). Notably, higher domestic output is positively associated with import dependency (β = 0.025, p = 0.000), revealing continued reliance on imported intermediate goods. The study provides new evidence that Nigeria’s industrial growth paradoxically fuels foreign reliance, highlighting structural weaknesses in import substitution strategies. Policy recommendations include implementing targeted tariff structures, shifting from restrictive forex bans to export promotion policies, and investing in local production of intermediate inputs. This research offers actionable insights for achieving sustainable economic independence in developing economies.