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Trade Flows and Exchange Rate Shocks in Nigeria: An Empirical Result

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  • David UMORU
  • Adaobi S OSEME

Abstract

In this paper, we explored the J-curve effect based on Nigerian data by adopting the vector error correction methodology. The results of the study indicated a cyclical feedback between the trade balance and the real exchange rate depreciation of the Naira. However, the analysis finds no empirical evidence in favour of the short-run deterioration of the trade balance as implied by the J-curve hypothesis. Rather, what is empirically supported is the cyclical trade effect of exchange rate shocks. As it were, a real exchange rate shock will initially improve then worsen and then improve the country’s aggregate trade balance. The instant improvement in the trade balance which is correlated with real depreciation provides no support for the J-curve hypothesis in the Nigerian trade balance. Hence, the short-run predictions of the J-curve are not observable in Nigeria.

Suggested Citation

  • David UMORU & Adaobi S OSEME, 2013. "Trade Flows and Exchange Rate Shocks in Nigeria: An Empirical Result," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(7), pages 948-977.
    • Handle: RePEc:asi:aeafrj:v:3:y:2013:i:7:p:948-977:id:1064
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    Citations

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    Cited by:

    1. Onatunji Olufemi, 2019. "Do real exchange rate changes have symmetric or asymmetric effects on trade balance in Nigeria? Evidence from Non-linear ARDL Model," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 11(1), pages 14-23, June.
    2. Yaya Keho, 2021. "Real Exchange Rate and Trade Balance Dynamics in Cote d Ivoire," International Journal of Economics and Financial Issues, Econjournals, vol. 11(1), pages 61-70.
    3. Ekundayo P. Mesagan & Olorunfemi Y. Alimi & Ismaila A. Yusuf, 2018. "Macroeconomic Implications of Exchange Rate Depreciation: The Nigerian Experience," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 16(3 (Fall)), pages 235-258.
    4. Agada, Franklin Ayibatunimibofa & Benwari Pagaebinyo Clarence, 2023. "Determinants of Exchange Rate Crisis in the Nigeria Economy," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(6), pages 1835-1844, June.
    5. Adedayo Emmanuel Longe & Folake Adenola & Adewale Musliudeen Balogun & Shehu Muhammad, 2019. "Asymmetric and Non-Asymmetric Impact of Real Effective Exchange Rate on Trade in Nigeria," Business & Management Compass, University of Economics Varna, issue 4, pages 259-274.

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