IDEAS home Printed from https://ideas.repec.org/a/eco/journ1/2014-04-11.html
   My bibliography  Save this article

An Econometric Estimation and Prediction of the Effects of Nominal Devaluation on Real Devaluation: Does the Marshal-Lerner (M-L) Assumptions Fits in Nigeria?

Author

Listed:
  • Abdulkadir Abdulrashid Rafindadi

    (Department of Accounting, Usmanu Danfodiyo University, Sokoto, Nigeria.)

  • Zarinah Yusof

    (Department of Economics, University of Malaya, Kuala Lumpur, Malaysia.)

Abstract

Nigeria has been depending on oil as its major export commodity for decades leading to the neglect of other vital economic resources. This situation led to massive unemployment as a result of an undiversified economic system, which in turn created an alarming paucity of external accruals to finance the lingering poverty level of the country. Similar to this, several economic indexes and researchers have been pointing out delusive and inconclusive growth attainment of the country which has not impacted positively on the populace. It is against this backdrop that this study aims to re-investigate whether nominal effective exchange rate could lead to real effective exchange rate and if this can be a synergistic strategy towards spurring competitive trading relationship between Nigeria and the rest of the globe. To ensure this, we use a quarterly time series data from 1971QI-2012QVI, and applied the traditional and structural break unit root tests; the Bayer-Hanck cointegration approach and the VECM-Granger causality test. The findings of the study confirmed that nominal effective exchange rate leads to real effective exchange rate and inflation exerts positive impact on real effective exchange rate in Nigeria. In addition, the study found that real effective exchange rate has positive impact on nominal effective exchange rate, but inflation declines it. The causality analysis, on the other hand, revealed that there is feedback effect between real and nominal effective exchange rates, between nominal effective exchange rate and inflation and between inflation and real effective exchange rate. This finding suggests that there are crystal avalanche of competitive opportunities for the country to jettison all its economic vices and move progressively in international trade with minimal hurdles, thus fitting in with the Marshall-Lerner assumption (M-L).

Suggested Citation

  • Abdulkadir Abdulrashid Rafindadi & Zarinah Yusof, 2014. "An Econometric Estimation and Prediction of the Effects of Nominal Devaluation on Real Devaluation: Does the Marshal-Lerner (M-L) Assumptions Fits in Nigeria?," International Journal of Economics and Financial Issues, Econjournals, vol. 4(4), pages 819-835.
    • Handle: RePEc:eco:journ1:2014-04-11
    as

    Download full text from publisher

    File URL: http://www.econjournals.com/index.php/ijefi/article/download/922/pdf
    Download Restriction: no
    File URL: http://www.econjournals.com/index.php/ijefi/article/view/922/pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Connolly, Michael & Taylor, Dean, 1976. "Adjustment to devaluation with money and nontraded goods," Journal of International Economics, Elsevier, vol. 6(3), pages 289-298, August.
    2. Bruno, Michael, 1978. "Exchange Rates, Import Costs, and Wage-Price Dynamics," Journal of Political Economy, University of Chicago Press, vol. 86(3), pages 379-403, June.
    3. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
    4. Edward, Sebastian, 1986. "Are Devaluations Contractionary?," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 501-508, August.
    5. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
    6. Christopher Kent & Rafic Naja, 1998. "Effective Real Exchange Rates and Irrelevant Nominal Exchange-rate Regimes," RBA Research Discussion Papers rdp9811, Reserve Bank of Australia.
    7. Roland Vaubel, 1976. "Real exchange-rate changes in the European community: The empirical evidence and its implications for European currency unification," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 112(3), pages 429-470, September.
    8. Krugman, Paul & Taylor, Lance, 1978. "Contractionary effects of devaluation," Journal of International Economics, Elsevier, vol. 8(3), pages 445-456, August.
    9. Mohsen Bahmani-Oskooee & Aghdas Mirzai, 2000. "Real and nominal effective exchange rates for developing countries: 1973:1-1997:3," Applied Economics, Taylor & Francis Journals, vol. 32(4), pages 411-428.
    10. repec:bla:econom:v:46:y:1979:i:183:p:281-94 is not listed on IDEAS
    11. Pesavento, Elena, 2004. "Analytical evaluation of the power of tests for the absence of cointegration," Journal of Econometrics, Elsevier, vol. 122(2), pages 349-384, October.
    12. MITEZA, Ilir, 2006. "Devaluation And Output In Five Transition Economies: A Panel Cointegration Approach Of Poland, Hungary, Czech Republic, Slovakia And Romania, 1993-2000," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(1).
    13. Guglielmo Maria Caporale & Luis Alberiko Gil-Alana & Robert Mudida, 2015. "Testing the Marshall–Lerner Condition in Kenya," South African Journal of Economics, Economic Society of South Africa, vol. 83(2), pages 253-268, June.
    14. Bahmani-Oskooee, Mohsen & Miteza, Ilir, 2002. "Do nominal devaluations lead to real devaluations in LDCs?," Economics Letters, Elsevier, vol. 74(3), pages 385-391, February.
    15. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    16. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-836, July.
    17. Adam, Christopher & Collier, Paul & Ndung'u, Njuguna (ed.), 2010. "Kenya: Policies for Prosperity," OUP Catalogue, Oxford University Press, number 9780199602377.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Haytem Ahmed Troug & Rashid Sbia, 2015. "The Relationship between Banking Competition and Stability in Developing Countries: The Case of Libya," International Journal of Economics and Financial Issues, Econjournals, vol. 5(3), pages 772-779.
    2. Abdulkadir Abdulrashid Rafindadi & Zakariyah Aliyu Olanrewaju, 2019. "Internal Control System, Sustainable Management and Service Delivery of NGO’s in Nigeria: An Empirical Analysis," International Review of Management and Marketing, Econjournals, vol. 9(2), pages 89-103.
    3. Rafindadi, Abdulkadir Abdulrashid & Ozturk, Ilhan, 2017. "Impacts of renewable energy consumption on the German economic growth: Evidence from combined cointegration test," Renewable and Sustainable Energy Reviews, Elsevier, vol. 75(C), pages 1130-1141.
    4. Abdulkadir Abdulrashid Rafindadi & Zarinah Yusof, 2015. "Are Linear and Nonlinear Exchange Rate Exposures Aggravating Agents to Corporate Bankruptcy in Nigeria? New Evidence from the U Test Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 5(1), pages 212-229.
    5. Abdulkadir Abdulrashid Rafindadi & Zakariyah Aliyu Olanrewaju, 2019. "The Impact of Internal Control System on the Financial Accountability of Non-Governmental organisations in Nigeria: Evidence from the Structural Equation Modelling," International Review of Management and Marketing, Econjournals, vol. 9(3), pages 49-63.
    6. Abdulkadir Abdulrashid Rafindadi & Abdulrashid Bello, 2019. "Is Dividend Payment of any Influence to Corporate Performance in Nigeria? Empirical Evidence from Panel Cointegration," International Journal of Economics and Financial Issues, Econjournals, vol. 9(2), pages 48-58.
    7. Abdulkadir Abdulrashid Rafindadi & Almustapha A Aliyu, 2017. "Growing the Growth of the Ghanaian Economy: Is the Function of the Countrys Financial Development of Any Significance?," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 7(2), pages 206-221, February.
    8. Abdulkadir Abdulrashid Rafindadi & Olashinde Joseph Ogidan, 2018. "Empirical Analysis of Poor Public Financial Management in Nigeria: Causes, Implications and Remedies," Asian Development Policy Review, Asian Economic and Social Society, vol. 6(4), pages 178-197, December.
    9. Abdulkadir Abdulrashid Rafindadi & Abdulazeez Musa, 2019. "An Empirical Analysis of the Impact of Public Debt Management Strategies on Nigeria's Debt Profile," International Journal of Economics and Financial Issues, Econjournals, vol. 9(2), pages 125-137.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Muhammad SHAHBAZ, 2009. "On Nominal and Real Devaluations Relation: An Econometric Evidence for Pakistan," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 9(1).
    2. Boubellouta Bilal & Muhammad Shahbaz, 2021. "Comparing the Relationship Between Nominal and Real Effective Exchange Rates During the Last Two Devaluations in Algeria," Global Business Review, International Management Institute, vol. 22(6), pages 1421-1440, December.
    3. Salah A Nusair, 2017. "On the Nominal and Real Currency Devaluation Nexus in European Transition Economies," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 43(4), pages 677-698, September.
    4. Mohsen Bahmani Oskooee & Magda Kandil, 2007. "Real and nominal effective exchange rates in MENA countries: 1970-2004," Applied Economics, Taylor & Francis Journals, vol. 39(19), pages 2489-2501.
    5. repec:ebl:ecbull:v:30:y:2010:i:1:p:247-264 is not listed on IDEAS
    6. Muhammad Shahbaz & Ijaz Ur Rehman & Ahmed Taneem Muzaffar, 2015. "Re-Visiting Financial Development and Economic Growth Nexus: The Role of Capitalization in Bangladesh," South African Journal of Economics, Economic Society of South Africa, vol. 83(3), pages 452-471, September.
    7. Uddin, Gazi Salah & Shahbaz, Muhammad & Arouri, Mohamed & Teulon, Frédéric, 2014. "Financial development and poverty reduction nexus: A cointegration and causality analysis in Bangladesh," Economic Modelling, Elsevier, vol. 36(C), pages 405-412.
    8. David Greasley & Les Oxley, 2010. "Cliometrics And Time Series Econometrics: Some Theory And Applications," Journal of Economic Surveys, Wiley Blackwell, vol. 24(5), pages 970-1042, December.
    9. Shahbaz, Muhammad & Farhani, Sahbi & Ozturk, Ilhan, 2013. "Coal Consumption, Industrial Production and CO2 Emissions in China and India," MPRA Paper 50618, University Library of Munich, Germany, revised 12 Oct 2013.
    10. Lee, Chi-Chuan & Lee, Chien-Chiang & Li, Yong-Yi, 2021. "Oil price shocks, geopolitical risks, and green bond market dynamics," The North American Journal of Economics and Finance, Elsevier, vol. 55(C).
    11. Paraskevi Salamaliki & Ioannis Venetis & Nicholas Giannakopoulos, 2013. "The causal relationship between female labor supply and fertility in the USA: updated evidence via a time series multi-horizon approach," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(1), pages 109-145, January.
    12. Shahbaz, Muhammad & Hye, Qazi Muhammad Adnan & Tiwari, Aviral Kumar & Leitão, Nuno Carlos, 2013. "Economic growth, energy consumption, financial development, international trade and CO2 emissions in Indonesia," Renewable and Sustainable Energy Reviews, Elsevier, vol. 25(C), pages 109-121.
    13. Martins IYOBOYI & Abdrelrasaq NA-ALLAH, 2014. "Innovation and economic growth: evidence from Nigeria," EuroEconomica, Danubius University of Galati, issue 1(33), pages 43-54, May.
    14. Shahbaz, Muhammad & Loganathan, Nanthakumar & Sbia, Rashid & Afza, Talat, 2015. "The effect of urbanization, affluence and trade openness on energy consumption: A time series analysis in Malaysia," Renewable and Sustainable Energy Reviews, Elsevier, vol. 47(C), pages 683-693.
    15. Syed Abul Basher & Elsayed Mousa Elsamadisy, 2012. "Country heterogeneity and long-run determinants of inflation in the Gulf Arab states," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 36(2), pages 170-203, June.
    16. Marta Gómez-Puig & Simón Sosvilla-Rivero, 2015. "“On the bi-directional causal relationship between public debt and economic growth in EMU countries”," IREA Working Papers 201512, University of Barcelona, Research Institute of Applied Economics, revised May 2015.
    17. Aviral Tiwari & Muhammad Shahbaz, 2014. "Revisiting Purchasing Power Parity for India using threshold cointegration and nonlinear unit root test," Economic Change and Restructuring, Springer, vol. 47(2), pages 117-133, May.
    18. Shahbaz, Muhammad, 2012. "Does trade openness affect long run growth? Cointegration, causality and forecast error variance decomposition tests for Pakistan," Economic Modelling, Elsevier, vol. 29(6), pages 2325-2339.
    19. Muhammad Shahbaz & Ilhan Ozturk & Amjad Ali, 2015. "Electricity Consumption and Economic Growth Causality Revisited: Evidence from Turkey," Bulletin of Energy Economics (BEE), The Economics and Social Development Organization (TESDO), vol. 3(4), pages 176-193, December.
    20. John D. Levendis, 2018. "Time Series Econometrics," Springer Texts in Business and Economics, Springer, number 978-3-319-98282-3, April.
    21. Chien-Chiang Lee & Chun-Ping Chang, 2006. "The Long-Run Relationship Between Defence Expenditures And Gdp In Taiwan," Defence and Peace Economics, Taylor & Francis Journals, vol. 17(4), pages 361-385.

    More about this item

    Keywords

    Marshall-Lerner; devaluation; exchange rates; cointegration;
    All these keywords.

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • F1 - International Economics - - Trade
    • G0 - Financial Economics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eco:journ1:2014-04-11. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ilhan Ozturk (email available below). General contact details of provider: http://www.econjournals.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.