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Exchange Rate Volatility and the Nigerian Balance Of Payments (1981-2016)

Author

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  • Nwanekezie, Stanley
  • Onyiro, Harrison

Abstract

The paper investigates the impact of exchange rate volatility on balance of payments in Nigeria using data from 1981 to 2016. The main objective of this study is to examine the extent to which exchange rate volatility measures have influenced the Balance of Payment (BOP) position in Nigeria during the period under study. The study utilized aggregate annual data from 1981 to 2016. The data was analysed with the co-integration/error correction model (ECM) method. The test for stationary using Augmented Dickey Fuller (ADF) showed that all the variables were not stationary in levels but were stationary in first difference. The Johansen-Juselius co-integration techniques were employed in testing for long run equilibrium relationship among the variables and the results indicated that co-integrating relationship was found among the variables. Findings from this study indicate that the systematic variation in the dependent variable (BOP) is explained by the four independent variables including nominal exchange rate, inflation rate, real interest rate and government expenditure. The result also reveals that there is long run relationship between exchange rate volatility and BOP. The paper concluded discouragement of over-reliance on imported goods and the promotion of domestic export produce is very imperative. This can only be achieved if the Nigerian economy is diversified and entrepreneurial development promoted in the country. In addition, the government should encourage export promotion strategies in order to maintain a surplus balance of trade which will help make the domestic currency strong and also prevent further depreciation of the Nigeria Naira.

Suggested Citation

  • Nwanekezie, Stanley & Onyiro, Harrison, 2018. "Exchange Rate Volatility and the Nigerian Balance Of Payments (1981-2016)," MPRA Paper 90562, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:90562
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    File URL: https://mpra.ub.uni-muenchen.de/90562/1/MPRA_paper_90562.pdf
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    References listed on IDEAS

    as
    1. MacKinnon, James G & Haug, Alfred A & Michelis, Leo, 1999. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 563-577, Sept.-Oct.
    2. Goodhart, C. A. E. & Figliuoli, L., 1991. "Every minute counts in financial markets," Journal of International Money and Finance, Elsevier, vol. 10(1), pages 23-52, March.
    3. Paresh Kumar Narayan, 2005. "The saving and investment nexus for China: evidence from cointegration tests," Applied Economics, Taylor & Francis Journals, vol. 37(17), pages 1979-1990.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Balance of Payment (BOP); ECM; Exchange rate volatility; Nigeria.;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies

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