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Juxtaposing Exchange Rate Volatility and Economic Growth Nexus in Nigeria
American Journal of Economics and Business Management,
Vol. 7 No. 2 (2024): February
Abstract
This study was undertaken to investigate the multifaceted challenges posed by exchange rate volatility in Nigeria and how they impact the national economy. The study juxtaposed exchange rate volatility with economic growth in Nigeria by modeling the effect of real exchange rate, nominal exchange rate, purchasing power parity, inflation rate and trade openness on Gross Domestic Product in Nigeria using time series econometric regression technique of the ordinary least square (OLS). From the result of the OLS, it is observed that real exchange rate, nominal exchange rate and purchasing power parity have a positive impact on GDP growth rate in Nigeria. On the other hand, inflation rate and trade openness has a negative impact on GDP growth in Nigeria. Thus, increase in inflation rate and trade openness will bring about a decline in GDP growth in Nigeria. From the regression analysis, it is also observed that real exchange rate, nominal exchange rate, purchasing power parity, inflation rate and trade openness are statistically significant in explaining economic growth in Nigeria. The F-test conducted in the study shows that the model has a goodness of fit and is statistically different from zero. In other words, there is a significant impact between the dependent and independent variables in the model. Finally, both R2 and adjusted R2 show that the explanatory power of the variables is moderately high and/or strong in explaining the economic growth in Nigeria. The standard errors show that all the explanatory variables were all low. The study recommends that address the real exchange rate volatility crisis like that of Nigeria today, governments should directly intervene in the foreign exchange market to influence the exchange rate. If the currency is undervalued, they may choose to revalue it to make their exports more competitive and correct the deviation from purchasing power parity among others.
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- Abdu, M., Umar, M. R., Mohammed, B. & Ajannah, J. M. (2021). Exchange rate fluctuations and economic growth nexus: An empirical evidence from Nigeria. Asian Journal of Economics, Finance and Management, 3(1), 491-498.
- Ajayi-Ojo, V. O. & Iyoha, M. A. (2022). Oil price volatility, exchange rate instability and economic growth in Nigeria: A Var study. West African Financial and Economic Review, 22(2), 1-22.
- Alba, J. D., & Papell, D. H. (2007). Purchasing power parity and country characteristics: Evidence from panel data tests. Journal of Development Economics, 83, 240-251.
- Anigbogu, T. U., Okoye, P.V.C., Anyanwu, N.K., & Okoli, M.I. (2014). Real Exchange Rate Movement-Misalignment and Volatility- and the Agricultural Sector: Evidence from Nigeria. American International Journal of Contemporary Research,. 4(7), 133-141.
- Arize, A. C. (2011). Purchasing power parity in LDCs: An empirical investigation. Global Finance Journal, 22(1), 56-71.
- Bahmani-Oskooee, M. & Arize, A. C. (2019). On the asymmetric effects of exchange rate volatility on trade flows: Evidence from Africa. Emerging Markets Finance and Trade, 1-28.
- Bahmani‐Oskooee, M. & Hegerty, S.W. (2007). Exchange rate volatility and trade flows: a review article. Journal of Economic Studies, 34(3): 211-255.
- Bahmani-Oskooee, M., & Harvey, H. (2017). Exchange rate volatility and its impact on commodity trade flows between Singapore and Malaysia. Journal of Economic Development, 42(1), 17-33.
- Edoko, T. D., Nwagbala, S. C., & Okpala, N. E. (2018). Impact of exchange rate on the performance of small and medium enterprises in Nigeria. International Journal of Trend in Scientific Research and Development. 2(4), 1553-1559.
- Edokobi, Tonna David (Ph.D.), Okpala Ngozi Eugenia, Okoye Nonso John. (2021). Exchange Rate and Trade Balance Nexus. International Journal of Trend in Scientific Research and Development. 5(5), 1290-1298.
- Ijirshar, V. U., Ushie, H. E., Agya, A. A., Bundepuun, F. D. & Udoji, U. (undated). Nexus between exchange rate volatility and trade flows in Nigeria nexus between exchange rate volatility and trade flows in Nigeria. Available at: https://ssrn.com/abstract=3973805
- Nakorji, M., Agboegbulem, N. T. I., Gaiya, B. A. & Atoi, N. V. (2021). Purchasing power parity approach to exchange rate misalignment in Nigeria. CBN Journal of Applied Statistics, 12(1), 45-75
- Ohwojero, P. E. & Onyeoma, S. (2022). The influence of exchange rate fluctuation on economic growth in Nigeria. https://www.researchgate.net/publication/365858540
- Oyovwi, O. D(2012). exchange rate volatility and economic growth in Nigeria. Mediterranean Journal of Social Sciences, 3(3), 399-407.
- Uche, E & Nwami, S. I. (2021). Dynamic effects of exchange rate movements on productivity levels: New Evidence From Nigeria Based on NARDL. Journal of Development Policy and Practice, 7(1) 96–111.
- Ufoeze, L.O., Okuma, C.N., Nwahoby, C. and Alajekwu, U.B. (2018). Effect of foreign exchange rate fluctuations on Nigerian economy. Annals of Spiru Haret University Economic Series, 18(1): 105-122.
- Yakub, M. U., Sani, Z., Obiezue, T. O. & Aliyu, V. O. (2019). Empirical investigation on exchange rate volatility and trade flows in Nigeria. Economic and Financial Review, 57(1): 23-46.
References
Abdu, M., Umar, M. R., Mohammed, B. & Ajannah, J. M. (2021). Exchange rate fluctuations and economic growth nexus: An empirical evidence from Nigeria. Asian Journal of Economics, Finance and Management, 3(1), 491-498.
Ajayi-Ojo, V. O. & Iyoha, M. A. (2022). Oil price volatility, exchange rate instability and economic growth in Nigeria: A Var study. West African Financial and Economic Review, 22(2), 1-22.
Alba, J. D., & Papell, D. H. (2007). Purchasing power parity and country characteristics: Evidence from panel data tests. Journal of Development Economics, 83, 240-251.
Anigbogu, T. U., Okoye, P.V.C., Anyanwu, N.K., & Okoli, M.I. (2014). Real Exchange Rate Movement-Misalignment and Volatility- and the Agricultural Sector: Evidence from Nigeria. American International Journal of Contemporary Research,. 4(7), 133-141.
Arize, A. C. (2011). Purchasing power parity in LDCs: An empirical investigation. Global Finance Journal, 22(1), 56-71.
Bahmani-Oskooee, M. & Arize, A. C. (2019). On the asymmetric effects of exchange rate volatility on trade flows: Evidence from Africa. Emerging Markets Finance and Trade, 1-28.
Bahmani‐Oskooee, M. & Hegerty, S.W. (2007). Exchange rate volatility and trade flows: a review article. Journal of Economic Studies, 34(3): 211-255.
Bahmani-Oskooee, M., & Harvey, H. (2017). Exchange rate volatility and its impact on commodity trade flows between Singapore and Malaysia. Journal of Economic Development, 42(1), 17-33.
Edoko, T. D., Nwagbala, S. C., & Okpala, N. E. (2018). Impact of exchange rate on the performance of small and medium enterprises in Nigeria. International Journal of Trend in Scientific Research and Development. 2(4), 1553-1559.
Edokobi, Tonna David (Ph.D.), Okpala Ngozi Eugenia, Okoye Nonso John. (2021). Exchange Rate and Trade Balance Nexus. International Journal of Trend in Scientific Research and Development. 5(5), 1290-1298.
Ijirshar, V. U., Ushie, H. E., Agya, A. A., Bundepuun, F. D. & Udoji, U. (undated). Nexus between exchange rate volatility and trade flows in Nigeria nexus between exchange rate volatility and trade flows in Nigeria. Available at: https://ssrn.com/abstract=3973805
Nakorji, M., Agboegbulem, N. T. I., Gaiya, B. A. & Atoi, N. V. (2021). Purchasing power parity approach to exchange rate misalignment in Nigeria. CBN Journal of Applied Statistics, 12(1), 45-75
Ohwojero, P. E. & Onyeoma, S. (2022). The influence of exchange rate fluctuation on economic growth in Nigeria. https://www.researchgate.net/publication/365858540
Oyovwi, O. D(2012). exchange rate volatility and economic growth in Nigeria. Mediterranean Journal of Social Sciences, 3(3), 399-407.
Uche, E & Nwami, S. I. (2021). Dynamic effects of exchange rate movements on productivity levels: New Evidence From Nigeria Based on NARDL. Journal of Development Policy and Practice, 7(1) 96–111.
Ufoeze, L.O., Okuma, C.N., Nwahoby, C. and Alajekwu, U.B. (2018). Effect of foreign exchange rate fluctuations on Nigerian economy. Annals of Spiru Haret University Economic Series, 18(1): 105-122.
Yakub, M. U., Sani, Z., Obiezue, T. O. & Aliyu, V. O. (2019). Empirical investigation on exchange rate volatility and trade flows in Nigeria. Economic and Financial Review, 57(1): 23-46.