Exchange Rate Management: Implications for Trade in Nigeria

Adebayo Olufemi Oduyemi, Timipre Mary Haruna and Adams Ndako Joshua
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Adebayo Olufemi Oduyemi: Monetary Policy Department, Central Bank of Nigeria, Central Business District, FCT Abuja, Nigeria.
Timipre Mary Haruna: Monetary Policy Department, Central Bank of Nigeria, Central Business District, FCT Abuja, Nigeria.
Adams Ndako Joshua: Monetary Policy Department, Central Bank of Nigeria, Central Business District, FCT Abuja, Nigeria.

International Journal of Research and Innovation in Social Science, 2023, vol. 7, issue 8, 1137-1153

Abstract: This study examines the effects of exchange rate management and its implication for trade in Nigeria. Annual data from 1981 to 2018 on Nigeria’s GDP, Global GDP, Exchange rate, Net non-oil trade, and Net commodity trade were spliced into quarterly series using the quadratic sum match method in EViews. The Markov switching model methodology was adopted to capture the impact of regime transitions on trade. The study suggests that a devaluation of the naira would lead to a further decline in net non-oil trade, suggesting that domestically produced goods are giffen in nature, (i.e., demand falls when prices fall), signaling inferior quality of non-oil exports, which therefore require value addition to compete internationally. Furthermore, the study finds that when oil exports are included in the net commodity trade, the giffen nature of Nigerian exports is concealed giving a normality to the nature of all goods exported from Nigeria. The results also show that fixed regimes are less detrimental to net trade. Though a flexible exchange rate enhances the Nigerian net position associated with the depreciation of the naira, the own income and foreign income impact on net Nigerian non-oil and total goods trade is more distortive. Policy recommendations include the adoption of a managed float exchange regime as well as the strengthening of standard agencies together with collaborations between exporters and research institutes towards improving the quality of non-oil exports.

Date: 2023
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