Exchange Rate Volatility and the Nigerian Balance Of Payments (1981-2016)

Stanley Nwanekezie and Harrison Onyiro

MPRA Paper from University Library of Munich, Germany

Abstract: The paper investigates the impact of exchange rate volatility on balance of payments in Nigeria using data from 1981 to 2016. The main objective of this study is to examine the extent to which exchange rate volatility measures have influenced the Balance of Payment (BOP) position in Nigeria during the period under study. The study utilized aggregate annual data from 1981 to 2016. The data was analysed with the co-integration/error correction model (ECM) method. The test for stationary using Augmented Dickey Fuller (ADF) showed that all the variables were not stationary in levels but were stationary in first difference. The Johansen-Juselius co-integration techniques were employed in testing for long run equilibrium relationship among the variables and the results indicated that co-integrating relationship was found among the variables. Findings from this study indicate that the systematic variation in the dependent variable (BOP) is explained by the four independent variables including nominal exchange rate, inflation rate, real interest rate and government expenditure. The result also reveals that there is long run relationship between exchange rate volatility and BOP. The paper concluded discouragement of over-reliance on imported goods and the promotion of domestic export produce is very imperative. This can only be achieved if the Nigerian economy is diversified and entrepreneurial development promoted in the country. In addition, the government should encourage export promotion strategies in order to maintain a surplus balance of trade which will help make the domestic currency strong and also prevent further depreciation of the Nigeria Naira.

Keywords: Balance of Payment (BOP); ECM; Exchange rate volatility; Nigeria. (search for similar items in EconPapers)
JEL-codes: O1 O2 O5 (search for similar items in EconPapers)
Date: 2018-12
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