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Effect Of Currency Devaluation On Economic Growth In Nigeria: New Evidence From Dynamic Ols

Author

Listed:
  • M. A., Dada,

    (Department of Economics, College of Management Sciences)

  • E. A., Olubiyi,

    (Department of Economics, College of Management Sciences)

  • S. O., Akinbode,

    (Department of Economics, College of Management Sciences)

  • B. P., Abalaba,

    (Department of Economics, College of Social and Management Sciences)

  • O. G., Okungbowa,

    (National Institute for Legislative and Democratic Studies)

Abstract

The extant literature is characterized with diverse views on policy impact prediction in respect of currency devaluation and economic growth. We have the optimists who view the policy impact prediction as positive due to its expansionary effect. We also have the pessimists who view it as negative due to its contractionary effect. There is ample evidence of this ambiguous relationship between currency devaluation and economic growth. The conclusion for different economies therefore is subject to empirical investigation. This study used dynamic OLS to examine the effects of currency devaluation as well as its associated returns on economic growth with special consideration to export and import of goods and services and inflation rate in Nigeria. Annual time series data covering the period 1981 to 2020 were fetched from Central Bank of Nigeria Statistical Bulletin augmented with latest version of WDIs of World Bank Group. The result shows that currency devaluation as well as its associated returns has a contractionary effect on output in support of the pessimist school of thought. Both inflation and export of goods and services have positively significant effect while import of goods and services has negatively significant effect on all the estimated models. The three control variables jointly produced the most desirable models with the highest adjusted R-square of about (0.998) in each case and with smallest variance of about (0.007, 0.003) respectively. The study, therefore, is concluded by recommending a substantial reduction in the naira-dollar exchange rate as well as import of goods and services while all measures should be taken in raising the volume of export of goods and services to accelerate economic growth in this socalled oil-rich nation.

Suggested Citation

  • M. A., Dada, & E. A., Olubiyi, & S. O., Akinbode, & B. P., Abalaba, & O. G., Okungbowa,, 2022. "Effect Of Currency Devaluation On Economic Growth In Nigeria: New Evidence From Dynamic Ols," Ilorin Journal of Business and Social Sciences, Faculty of Social Sciences, University of Ilorin, vol. 24(1), pages 1-19, February.
    • Handle: RePEc:ris:ilojbs:0088
    as

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    References listed on IDEAS

    as
    1. Jinzhao Chen, 2015. "Interprovincial Competitiveness and Economic Growth: Evidence from Chinese Provincial Data (1992–2008)," Pacific Economic Review, Wiley Blackwell, vol. 20(3), pages 388-414, August.
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    3. Acemoglu,Daron & Robinson,James A., 2009. "Economic Origins of Dictatorship and Democracy," Cambridge Books, Cambridge University Press, number 9780521671422, January.
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    5. Jinzhao Chen, 2012. "Real Exchange Rate and Economic Growth: Evidence from Chinese Provincial Data (1992 - 2008)," PSE Working Papers halshs-00667467, HAL.
    6. Adebayo Mohammed, Ojuolape & H. Agboola, Yusuf & K. Moshood, Alabi & O. Abdullah, Oladipupo, 2020. "The Effects of Currency Devaluation on Output Growth in Developing Economies with Currency Crises," Working Papers 7, Department of Economics, University of Ilorin.
    7. Klein, Michael W. & Shambaugh, Jay C., 2012. "Exchange Rate Regimes in the Modern Era," MIT Press Books, The MIT Press, edition 1, volume 1, number 026251799x, April.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Currency Devaluation; Naira-Dollar Exchange Rate; Dynamic OLS; Economic growth;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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