Exchange Rate and Balance of Payments in Nigeria

Authors

  • Dare Funso David Adekunle Ajasin University
  • Oludayo Elijah Adekunle Adekunle Ajasin University

Keywords:

ARDL; Balance of Payments; Devaluation; Exchange Rate

Abstract

Exchange rate policy is a fundamental economic policy that affects other macroeconomic variables and balance of payments. Nigeria is currently experiencing unstable balance of payments with exchange rate policy being one of the leading policies to solve this problem. In line with this, the study explored the policy effect and implication of exchange rate on balance of payments in Nigeria. Secondary data which covered the period of 1986 to 2018 were obtained from Central Bank of Nigeria Statistical Bulletin. Augmented Dickey – Fuller (ADF) and Bound Test were conducted to test for stationarity and long run relationship among exchange rate, money supply, trade openness, inflation and balance of payments. Pairwise casualty test was also conducted to ascertain the direction of causality between exchange rate and balance of payments. In line with the unit root result, Autoregressive Distributed Lag (ARDL) was employed for analysis. The ARDL result revealed that exchange rate and trade openness stimulate overall balance payments performance in Nigeria while the causality result showed independent relationship between exchange rate and balance of payments in Nigeria. The implication of these findings is that exchange rate stability is germane for enhancing balance of payments performance through the promotion of trade activities. Thus, it was recommended that exchange rate stability should be pursued vigorously because internal and external performance of the nation hovers around exchange rate stability.

Author Biographies

Dare Funso David, Adekunle Ajasin University

Senior Lecturer, PhD., Department of Banking and Finance

Oludayo Elijah Adekunle, Adekunle Ajasin University

M.Sc. Student Department of Banking and Finance

References

Abdullahi, I. B.; Abubarkar, M. A.; Fakunmoju, S. K. & Giwa, K. O. (2016). Evaluating the granger causality effect of exchange rate on Nigerian balance of payment: A granger causality analysis. Account and Financial Management Journal, 1(3), pp. 162-174.
Agundu, P. U. C.; Akani, W. H. & Kpakol, F. C. (2013). Exchange rate dynamics and balance of payments repositioning in Nigeria. European Journal of Business and Management, 5(29), pp. 84-91.
Ahmad, N.; Ahmed, R. R.; Khoso, I.; Palwishah, R. I. & Razak, U. (2014). Impact of exchange rate on balance of payment: An investigation from Pakistan. Research Journal of Finance and Accounting, 5(13), pp. 32-42.
Barasa, B. W. (2013).The relationship between exchange rate Volatility and balance of payments in Kenya. MBA Thesis. School Of Business, the University of Nairobi.
Beatrice, K. M. (2001). Long-run and short-run determinants of the real exchange rate in Zambia. Working Papers No 40. http://www.handels.gu.se/econ/.
Dalimus, Obumneke & Muhammed, (2018). Effect of nominal exchange rates on Nigeria’s balance of payments: 1986-2016. Benue Journal of Social Sciences, 4(1), pp. 34 – 52.
Eke, I. C.; Eke, F. A. & Obafemi, F. N. (2015). Exchange rate behaviour and trade balances in Nigeria: An empirical investigation. International Journal of Humanities and Social Science, 5(8;1), pp. 71-76.
Gligorić, M. (2010). Exchange Rate and Trade Balance: J-curve Effect. Panoeconomicus, 1, pp. 23-41
Hoontrakul, P. (1999). Review of exchange rate theory.
Huchet-Bourdon, M. & Korinek, J. (2011). To what extent do exchange rates and their volatility affect trade? OECD Trade Policy Papers, No. 119. OECD Publishing.
Ibarra & Blecker (2014). Structural change, the real exchange rate, and the balance of payments in Mexico, 1960-2012.
Imoisi, A.I. (2012). Trends in Nigeria’s balance of payments: an empirical analysis from 1970-2010, European Journal of Business and Management, 4(21), pp. 210-217.
Ismaila, M. (2016). Exchange rate depreciation and Nigeria economic performance after structural adjustment programmes (SAPS). NG-Journal of Social Development, 59(2), pp. 122-132
Lamsso, M. S. & Masoomzadeh, S. (2017). Study of impact of exchange rate on tourism balance of payment in countries with top tourist attractions (vector error correction approach). International Journal of Tourism & Hospitality Reviews, 4(1), pp. 10-20.
Lencho, D. B. (2013). The effect of exchange rate movement on trade balance in Ethiopia. International Political Economy Class. University of Tokyo.
Limbore, N. V. & Moore, S. P. (2019). Impact of exchange rates on balance of payment of India. Review of Research, 8(7), pp. 1-5.
Lotfalipour, M. R. & Bazargan, B. (2014). The impact of exchange rate volatility on trade balance of Iran. Advances in Economics and Business, 2(8), pp. 293-302.
Mungami, S. E. (2012). The effects of exchange rate liberalization on the balance of payment of a developing Country: A case of Kenya. Unpublished MBA Thesis, Kenyatta University.
Nnanna, O. (2004). Foreign private investment in Nigeria. Economic and Financial Review, 41(4), pp. 87-95.
Nwanosike, D. U.; Uzoechina, B. Ebenyi, G. O. & Ishiwu, V. (2017). Analysis of balance of payments trend in Nigeria: A test of Marshall-Lerner hypothesis. Saudi Journal of Business and Management Studies, 2(5), pp. 468-474.
Odili, O. (2014). Exchange rate and balance of payment: An autoregressive distributed lag (ARDL) econometric investigation on Nigeria. Journal of Economics and Finance, 4(6), pp. 21-30.
Ogbonna, B. C. (2010). Financial development, trade openness and economic growth in a small open economy: Evidence from Botswana. Journal of Banking, 4(1), pp. 59-76.
Oladipupo, A. O. & Ogebenovo , F. O. (2011). Impact of exchange rate on balance of payment in Nigeria. An International Multidisciplinary Journal, 5(4), pp. 73-88.
Olanipekun, D. B. & Ogunsola, A.J. (2017). Balance of payment crises in Nigeria: The role of exchange rate. International Journal of Economics, Commerce and Management, 5(5), pp. 119-140.
Onoh, J. K. (2002). Dynamics of money, banking and finance in Nigeria. An Emerging Market, Aba: Astra Meridian.
Razazadehkarsalari, A.; Haghir, F. & Behrooznia, A. (2011). The effect of exchange rate fluctuations on real GDP in Iran. American Journal of Scientific Research, 26, pp. 6-18.
Ribeiro, R. S. M.; Lima, G. T. & McCombie, J. S. L. (2014). Exchange rate, income distribution and technical change in a balance-of-payments constrained growth model. UNU-MERIT conference.
Shafi, K.; Hua, L.; Idrees, I. & Nazeer, A. (2015). Impact of exchange rate, inflation rate and interest rate on balance of payment: A study from India and Pakistan. American Journal of Business, Economics and Management, 3(1), pp. 9-13.
Stučka, T. (2004). The effects of exchange rate change on the trade balance in Croatia. International Monetary Fund WP/04/65.

Downloads

Published

2020-05-26

Issue

Section

Articles