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Exchange Rate Volatility and Export Trade in Nigeria: An Empirical Investigation

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Author Info
Aliyu, Shehu Usman Rano

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Abstract

The paper seeks to quantitatively assess the impact of exchange rate volatility on non oil export flows in Nigeria. Theoretically, volatility-trade link is ambiguous, although a strand of studies reported inverse link between export flow and volatility. The paper employed fundamental analysis where the flow of non oil exports from the Nigerian economy is assumed to be predicated on fundamental variables: the naira exchange rate volatility, the US dollar volatility, Nigeria’s terms of trade (TOT) and index of openness (OPN). Empirical results showed presence of unit root at level, however, the null hypothesis of nonstationarity was rejected at first difference. Cointegration results revealed that a stable long run equilibrium relationship exists between non oil exports and the fundamental variables. Using quarterly observations for twenty years, vector cointegration estimate revealed that the naira exchange rate volatility decreased non oil exports by 3.65% while the same estimate for the US dollar volatility increased export of non oil in Nigeria by 5.2% in the year 2003. The paper recommends measures that would promote greater openness of the economy and exchange rate stability in the economy.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13490.

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Date of creation: 30 Oct 2008
Date of revision: 17 Feb 2009
Handle: RePEc:pra:mprapa:13490

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Related research
Keywords: exchange rate volatility; non oil exports; terms of trade; index of openness; unit root and cointegration analysis.;

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Find related papers by JEL classification:
F10 - International Economics - - Trade - - - General
F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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