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Analysis of Exchange Rate Fluctuations on Economic Growth in Nigeria

Author

Listed:
  • Dr. David Ogwuche

    (Bingham University, Nasarawa, Nigeria)

  • Jeremiah M. Tule

    (Bingham University, Nasarawa, Nigeria)

  • Racheal L. Jeremiah Dandaura

    (Bingham University, Nasarawa, Nigeria)

  • Gabriel Akogwu

    (Bingham University, Nasarawa, Nigeria)

  • Emmanuel O. Nkpubre

    (Bingham University, Nasarawa, Nigeria)

Abstract

Motivated by the 2023 exchange rate reforms that led to significant depreciation of the domestic currency and macroeconomic instability, the paper examines the effect of exchange rate fluctuations on economic growth in Nigeria, using quarterly data from 2010:1 to 2023. The nonlinear autoregressive distributed lag approach was employed to analyse real GDP, exchange rate, crude oil price and macroeconomic instability. The overall result suggests a long run relationship between exchange rate and economic growth. The short run dynamic shows past and current exchange rate depreciation have positive and significant impact on economic growth while the past value of exchange rate depreciation exacts a negative and significant influence on growth. The results also reveal that positive oil price has stimulated economic growth while structural break has negative and strong effect on economic growth. The long-run result shows that both positive oil price and macroeconomic stability have positive effect on economic growth. This highlights the significance of oil price when assessing the relationship between exchange rate and economic growth in Nigeria. The paper recommends that the central bank should review sectoral credit policy to encourage lending to the productive sectors of the economy. The government should intensify economic reforms to diversify the economy by investing in the mining and agricultural sector with emphasis on refined and finished products. The government should address structural imbalance by building sustainable roads, rails, while policy related issues should be designed and carefully implemented to avoid shocking the economy.

Suggested Citation

  • Dr. David Ogwuche & Jeremiah M. Tule & Racheal L. Jeremiah Dandaura & Gabriel Akogwu & Emmanuel O. Nkpubre, 2024. "Analysis of Exchange Rate Fluctuations on Economic Growth in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(7), pages 128-141, July.
    • Handle: RePEc:bcp:journl:v:8:y:2024:i:7:p:128-141
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    References listed on IDEAS

    as
    1. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    2. Pesaran, M.H. & Shin, Y., 1995. "An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis," Cambridge Working Papers in Economics 9514, Faculty of Economics, University of Cambridge.
    3. Fayyaz Ahmad & Muhammad Umar Draz & Su‐Chang Yang, 2019. "China's economic development: does exchange rate and FDI nexus matter?," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 33(2), pages 81-93, November.
    4. John Weeks, 2008. "A Note on Mundell-Fleming and Developing Countries," Working Papers 155, Department of Economics, SOAS University of London, UK.
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