Exchange Rate Policy And Trade Balance In Nigeria

Samphina Acacemy Project And Seminar Materials

Abstract

The study estimated the effect of exchange rate policy on the balance of trade and economic growth in Nigeria for the period of 1980 – 2024 using annual time data series gotten from the CBN statistical bulletin. It was however proven empirically that exchange rate has a significantly negative impact on balance of trade in Nigeria both in the short-run and in the long run, as shown in the negative association between real exchange rate and balance of trade suggesting that devaluation is not beneficial to Nigeria’s export. We used the real exchange rate for the analysis applying the Ordinary Least Square Model (OLS) to test for the econometric criterion, the Augmented Dickey-Fuller test for unit root test and the error correction mechanism (ECM) to investigate the linkage of these variables. The co-integration test confirms that there is a long run relationship between economic growth, trade balances and the exchange rate. The estimated result shows that the exchange rate has a significant negative influence on trade balance but a positive relationship with the GDP during the period. It was therefore recommended that manufacturing holds the key to technological development. It must be promoted not only for its contribution to the GDP but, even more importantly, for its capacity to energize and back-stop the other productive sectors of the economy. Also monetary authorities should pursue policies that would stabilize exchange rate and curb inflation for a sustainable economic growth.