Financial Development, Exchange Rate Stability and Trade in Nigeria

This study examines the impact of financial development, exchange rate stability, economic progress, FDI, and population on trade in Nigeria using the ARDL approach of estimation from the period 1980 to 2022. The outcome of the unit root test indicates that all the variables are stationary at one percent level of significance. Similarly, the bound test also confirms the long-run association among the model variables. The result of the short-run estimates reveals that financial development; exchange rate stability, economic progress and FDI increased the level of trade in Nigeria. However, population is not a determinant factor of trade in the nation. The long-run result shows that financial development, exchange rate stability, economic progress, FDI, and population significantly increase the level of trade performance in the country. Hence, the study suggests financial development policy reform through monetary policy instruments that will enhance the level of credit allocation and maintain the stability of exchange for effective trade and economic growth in the country. Nonetheless, the limitation of the study may consist of the incorporation of other important variables like energy use, industrial growth, and pollution. Accordingly, future studies should consider these factors to improve the policy analysis and recommendations.