CHAPTER ONE

IINTRODUCTION

• Background To Study

Historically, International trade between countries and across continents have existed for centuries including previous civilizations. The outcomes of International Trade on Economic Growth can be said to be pioneered by Adam Smith (1776).This idea prevailed until World War II, although with relative hibernation during the ‘marginalist revolution’. After WWII, the introverted and protectionist Economic growth experiments had some significance, especially in Latin America. From the ’60s on, owing to the failure of those experiments and the association of quick Economic growth with the introduction of International trade and the consequent international specialization in several countries as well as to the results of many studies based on the neoclassical theories of Economic growth and international trade, a newly decisive role was given to International trade as economic growth’s driving force. However, although the dominant theoretical position tended, from the very start (Cockburn et all,2021) .to indicate a correlation between International trade and economic growth, many studies linked the gains of international trade only with static effects. But Baldwin (1984), for example, concluded, in a survey of empirical studies, that the static effects were of little relevance.

Debate has broadened in the last decades, precisely in the direction of pointing out and stressing the dynamic effects of international trade. The theoretical development afforded by the models of endogenous economic growth especially after the works of Romer (1986) and Lucas (1988), which triggered the creation of empirical studies, moved toward an integrated analysis of the economic growth and international trade theories. So, the classical tradition, plainly interrupted by the neoclassical separation of those two areas of the theory, seems to have been recovered, assigning, as a result, a decisive role to international trade on the countries’ rate of economic growth.Due to the recognition of this relevancies has led to the incessant appearance of proposals from international organizations, such as the World Bank (WB) and the United Nations (UN).

As a result, many countries began to reduce commercial barriers and other controls of economic activity and obtained a significant increase in the rate of economic growth, which suggests that extroversion has an ever-changing effect on the economy, helping to accelerate the rate of economic growth. Moreover, the processes of economic integration intensified. Besides, the relationship between export and economic growth has triggered an ever-growing curiosity; theoretically, it has been debated upon that a change in export rates could change output. (Cockburn et all, 2021)

Export, therefore, is often considered to be the main determinant of the production and employment growth of an economy which is shown in Gross Domestic Product growth (Ramos, 2001).The aim to achieve rapid economic growth and development is most relevant and crucial for developing countries as a whole specifically Cameroon and exports are generally perceived as a driving force for economic growth (Hoekman,2020). Empirical and theoretical studies regarding the role of exports in raising the economic growth and development of a country are not exhaustible. Adam Smith and David Ricardo have argued that foreign trade is the primal source of economic growth and more economic gain is achieved from specialization. Exports being the major source of economic growth have many theoretical justifications according to the export-led growth theory hypothesis

Firstly, in the Keynesian theory, more exports generate more income growth through foreign exchange multiplier in the short run.

Secondly, export raises more foreign exchange which is used to purchase commodities such as machinery, electrical and transport equipment,  fuel and food which is motivating factors for the economic growth of any nation.

Thirdly, exports promote growth indirectly through increased competition, economies of scale, technological development and increased capacity utilization.

Furthermore, many positive externalities like the reduction of organizational inefficiencies or more efficient management, better production techniques, positive learning from foreign rival countries and technical know-how about product design are accrued as a result of more exports,  leading to economic growth. In fact, over the past decade, Cameroon, like other countries in Sub-Saharan Africa (SSA), has experienced a dramatic increase in export growth in general and agricultural exports. According to the “conditional convergence theory,” it suggests that Cameroon could bridge the gap of poverty with other richer nations by trading with those countries which have high income and good trade policies.

Africa plays only a marginal role in world trade. Its share of global exports is 2.4 per cent, with Sub-Saharan Africa accounting for just 1.7 per cent. Yet for these countries themselves, world trade in fact plays a major role. In many parts of Sub-Saharan Africa, foreign trade measured in terms of imports and exports of goods and services represents more than 50 per cent of GDP. This frequently means a great dependency on imports, not adequately balanced by corresponding exports. The comparatively strong import dependency of these economies is reflected in statistics showing the share of GDP accounted for by foreign trade as a whole to be considerably more than twice the share accounted for by exports. For Mozambique for example, trade represents 96 per cent of GDP and exports only 26 per cent, for Rwanda, the figures are 45 per cent to 15 per cent, Kenya 50 per cent to 16 per cent.The situation is more balanced in South Africa with 64 per cent to 31 per cent (in other words, the trade share as a whole is roughly double the export share). Sub-Saharan Africa’s exports to the rest of the world remain dominated by raw materials; almost two-thirds comprise fuels, ores and metals, and another 15 per cent agricultural product.Only 16 per cent are finished products, whose exports are being crucial for value creation and employment in these economies.

 Cameroon is a low middle-income country with vast quantities of natural resources open to international trade. It is a member of the Commonwealth, the Free Trade Zone and the CEMAC (Central African Economic and Monetary Community).The share of foreign trade in Cameroon concerning its GDP is around 50%. Spain, Italy and France are its three prominent export traders. The main export commodities are mineral fuels, oil, wood, coal, cocoa, cotton, and aluminium. Its three prominent import suppliers are Nigeria, France and China. Cameroon mainly imports mineral fuels, oil, cereals, vehicles, machinery, electrical and electronic equipment. The European Union is Cameroon’s primary trade partner, accounting for more than 50% of its trade (Cameroon report, 2014).On January 15, 2009, the two entities signed an economic partnership agreement. Consequently, Cameroon has committed itself to liberalize 80% of its imports from this area over a period of 15 years. For some years now, eastern Asian countries (especially China, Japan, India and Thailand) have been reinforcing their trade ties with Cameroon. Today, this zone represents almost 20% of the country’s total trade. Due to the massive import of food products, the country’s trade balance remains in deficit and Cameroon has to improve its level of openness starting 2011, to improve its performance in the foreign trade plan. Never the less, Cameroon is engineering great efforts to facilitate its trade environment. In 2013, the country was classified 161 out of 185 countries on the Ease of Doing Business ranking, which signifies am upward movement of more than 4 places from its rank in the previous year. The Douala free port is the hub of foreign trade and importers are allowed eleven free days without having to pay storage fees. Furthermore, the country is gearing its efforts towards optimization of its one-one-stop-shop foreign trade GUCE which digitalization is on the way. (International trade centre, Cameroon report 2014).Cameroon is the 111th largest export economy in the world and the 106th most complex economy according to the Economic Complexity Index (ECI). In 2017, Cameroon exported $4.27B and imported $5.88B, resulting in a negative trade balance of $1.61B.In 2017 the GDP of Cameroon was $34.9B and its GDP per capita was $3.71k.The top exports of Cameroon are Crude Petroleum ($1.34B), Sawn Wood ($616M), Cocoa Beans ($492M), Bananas ($306M) and Rough Wood ($219M), using the 1992 revision of the HS (Harmonized System) classification. top imports are Refined Petroleum ($396M), Special Purpose Ships ($351M), Rice ($304M), Crude Petroleum ($220M) and Packaged Medicaments ($195M). The top export destinations of Cameroon are France ($559M), China ($488M), Italy ($392M), Belgium-Luxembourg ($359M) and the Netherlands ($356M) (Cockburn et all, 2021).The top import origins are China ($1.06B), France ($548M), the Republic of the Congo ($441M), Thailand ($275M) and Nigeria ($253M), ( International Trade Database, 2017).

• Problem Statement

The problem in this research lies in the uncertainty of a clear and accurate interpretation of the  real impacts of globalization on the economic growth of Cameroon . less well understand most often than not, is the clear relationship between external trade and economic growth and how they affect and depend on each other, which often pose as a major problem to policy makers,  the academic community and researchers getting their facts straight which by so doing clouds their knowledge with controversies and speculations which for the most part are misleading and highly inconsistent. This research gravitates towards presenting a relevant, accurate analysis on the effects of globalization on the economic growth of Cameroon presenting accurate objective information from both sides of the divide.. 

• Research Questions

This section presents the main research question and specific research questions implored in this study  

• Main Research Question

What are effects of globalization on the Economic Growth in Cameroon

• Specific Research Questions

1, what are the main drivers of Economic growth in Cameroon?

2, how is external trade contributing to the economic growth in Cameroon?

3, what are the major difficulties hindering the progress of external trade to cause economic growth in Cameroon? 

1.4 Limitations

1.5 Objectives of This Study

This section presents the main goals and specific of this goals of this study

1.5.1 Main Objectives of Study

The main objective of this research is to investigate effects of globalization on the economic growth of Cameroon

• Specific Objectives of The Study

1, To examine the main internal drivers of economic growth and development in Cameroon

2, To account for the role of globalization in economic growth of Cameroon

3, To identify the major obstacles those are preventing external trade from

1.6 Research Hypothesis

• national tax is the main source of Cameroon’s economic growth
• External trade has no direct role or effect on the rate of Cameroons economic growth
• The Cameroon external trade sector is mainly faced by internally originated problems and difficulties