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Productivity Bias Hypothesis: New Evidence from Parallel Market Exchange Rate

Author

Listed:
  • Dada James Temitope

    (Department of Economics, Obafemi Awolowo University, Ile-Ife, Nigeria)

  • Olomola Philip Akanni

    (Department of Economics, Obafemi Awolowo University, Ile-Ife, Nigeria)

  • Ajide Folorunsho Monsur

    (Department of Economics, University of Ilorin, Ilorin, Nigeria)

Abstract

Aim/Purpose: The purpose of this study is to investigate Productivity Bias Hypothesis (PBH) in Nigeria using parallel (black) market exchange rate.Design/Methodology/Approach: The study focused on Naira-Dollar (N/$) parallel market exchange rate. Quarterly data from 1995 to 2018 were used. Data on domestic productivity and parallel market exchange rate were sourced from Central Bank of Nigeria (CBN) statistical bulletin, 2018 edition. US productivity data was sourced from Federal Reserve Economic Data. Autoregressive Distributed Lag (ARDL) was used as the estimation technique.Findings: The result reveals that parallel (black) market exchange rate support the presence of productivity bias hypothesis in Nigeria. Furthermore, the purchasing power parity hypothesis was rejected using the conventional unit root test. This implies that using official exchange rate, the study rejects the productivity bias hypothesis.Research Implications/Limitations: The implication of the study is that exchange rate in Nigeria should be determined freely in the foreign exchange market.Originality/Value/Contribution: Previous studies have used official exchange rate to test the validity of the productivity bias hypothesis, and the results can be basically described as mixed. Hence, this study differs from extant studies as it examined productivity bias hypothesis using parallel market exchange rate.

Suggested Citation

  • Dada James Temitope & Olomola Philip Akanni & Ajide Folorunsho Monsur, 2020. "Productivity Bias Hypothesis: New Evidence from Parallel Market Exchange Rate," Economics, Sciendo, vol. 8(1), pages 31-40, June.
    • Handle: RePEc:vrs:econom:v:8:y:2020:i:1:p:31-40:n:3
    DOI: 10.2478/eoik-2020-0003
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    References listed on IDEAS

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    More about this item

    Keywords

    Purchasing Power Parity; Productivity Bias Hypothesis; Productivity Differentials; Parallel Market Exchange Rate; Black Market Exchange Rate;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F30 - International Economics - - International Finance - - - General

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