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Testing The J-Curve Phenomenon In Nigeria: An Ardl Bounds Testing Approach

Author

Listed:
  • Sani Bawa

    (Central Bank of Nigeria, Abuja, Nigeria and West African Monetary Institute, Accra, Ghana)

  • Rabia Muhammad Abdul

    (Central Bank of Nigeria, Abuja, Nigeria)

  • Zainab Sani

    (Central Bank of Nigeria, Abuja, Nigeria)

  • Mohammed Dauda

    (Central Bank of Nigeria, Abuja, Nigeria)

Abstract

This study examined the short-run and long-run effects of real exchange rate changes on the Nigeria’s trade balance. The paper employed both linear and non-linear ARDL bounds testing approach to cointegration to test for the J-curve phenomenon in Nigeria using quarterly data spanning the period 1994 to 2018. Empirical results from the analysis revealed that real depreciation would lead to improvements in Nigeria’s trade balance in the long-run. It also indicated that growth in foreign income tend to worsen the trade balance, while growth in domestic income improved the Nigeria’s trade balance. In the short-run, however, our findings revealed that the J-curve phenomenon does not hold in Nigeria. The non-linear model result further provided additional evidence that the impact of real exchange rate changes on trade balance in Nigeria is asymmetric, as real depreciation played a significant role in influencing Nigeria’s trade balance, while real appreciation does not have an impact. The study recommends a moderation in imports through an expansion in domestic production and the need to encourage non-oil exports in the country.

Suggested Citation

  • Sani Bawa & Rabia Muhammad Abdul & Zainab Sani & Mohammed Dauda, 2018. "Testing The J-Curve Phenomenon In Nigeria: An Ardl Bounds Testing Approach," West African Journal of Monetary and Economic Integration, West African Monetary Institute, vol. 18(1), pages 47-71, June.
    • Handle: RePEc:wam:journl:v:18:y:2018:i:1:p:47-71
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    Citations

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    Cited by:

    1. Homamul Islam, 2021. "Evaluating the Persistence of j Curve Phenomenon in the Bilateral Trade between Bangladesh and USA: The ARDL Bounds Testing Approach and Granger Causality Analysis," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 7(2), pages 74-81, 06-2021.
    2. Yaya Keho, 2021. "Real Exchange Rate and Trade Balance Dynamics in Cote d Ivoire," International Journal of Economics and Financial Issues, Econjournals, vol. 11(1), pages 61-70.

    More about this item

    Keywords

    Real Exchange Rate; Trade Balance; J-Curve; Depreciation.;
    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
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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