The Impact of Monetary Policy on Foreign Trade in Nigeria
CHAPTER ONE
OBJECTIVES OF THE STUDY
The main objective of the study is to investigate the impact of monetary policies on foreign trade in Nigeria economy and how it affect economic development.
Specifically, the study seeks to:
- To examine the impact of monetary policies on foreign trade.
- To examine the hindrances to monetary policies operations in Nigeria.
- To proffer suggestions on how monetary policies can be managed for better contribution to foreign trade and the economy development.
CHAPTER TWO
CONCEPTUAL ISSUES
Monetary policy is the process by which the Central Bank or monetary authority of a country control the supply of money, and cost of money or rate of interest to attain a set of objectives oriented towards the growth and stability of the economy (Wikipedia, 2010). Monetary policy on the other hand, refers to the specific actions taken by the Central Bank to regulate the value supply and cost of money in the economy with a view to achieving government microeconomic objectives for many countries, the objectives of monetary policy are explicitly stated in the laws establishing the Central Bank, while for others they are not (CBN 2006).
Monetary policy can be defined as the measures or combination of measures designed to influence or regulates the volume, price and direction of money and credit (Nwanko, 2002). It can as well be see as the management of the expansion and contraction of the volume of money in circulation for the purpose of achieving certain declared national objectives (Uzoaga, 2001). The stock of money managed the through expansion (lowering the cost and reducing increasing the quantity) of money depending on the macroeconomic policy target economists agree that monetary policy entails the process of determining and varying the cost and availability of credit. They are also unanimous on the fact that the purpose is to enhance monetary stability. (Nwikina, 2003).
The importance of monetary policy stems from the fact that it influences the quantity or the price of the medium of exchange. It, therefore, effect activities in every market because money is good which is traded in every market. The task of monetary authorities is to control money from being a source of economic disturbance. The idea policy is to maintain a steady growth of money supply sufficient to finance expanding output without provoking inflation (Friendman, 2001). To do this effectively, a number of policy instruments are utilized.
Monetary policy involves measures designed to regulate and control the volume cost, availability and direction of money and credit in an economy to achieve some specified macroeconomic policy objectives (Anyanwu, 2003). That is, it is a deliberate effort by the monetary authorities (the Central Bank) to control the money supply and credit conditions for the purpose of achieving certain broad economic objectives.
CHAPTER THREE
THEORETICAL FRAMEWORK AND RESEARCH METHODOLOGY
INTRODUCTION
This chapter deals with the theoretical framework of this research, the sources of data that will be used for the empirical analysis and the methods of analysis that will be employed. This chapter also presents the model specifications for the purpose of the empirical analysis of this research work.
THEORETICAL FRAMEWORK
According to the law of comparative advantage, a country must specialize in those products that it can produce relatively more efficiently than other countries (Krugman & Obstfeld 2003). This implies that despite absolute cost disadvantages in the production of goods and services, a country can still export those goods and services in which its absolute disadvantes are the smallest and import products with the largest absolute disadvantages (Smith, 2010).
CHAPTER FOUR
DATA PRESENTATION
This research makes use of secondary data which were sourced from the Central Bank of Nigeria statistical bulletin (2010) and the National Bureau of statistics (2010). The data were collected based on the scope of this research which is from 1981 to 2010. The data are presented below.
CHAPTER FIVE
SUMMARY
This research is on the effect of monetary policies on foreign trade in Nigeria economy. The main objective of this research is to determine the effect of monetary policies on foreign trade. The research made use of secondary data which were collected from the Central Bank of Nigeria, Statistical Bulletin (2010). The data were collected from the period of thirty years (i.e 1981-2010). The ordinary least square regression technique was employed in the analysis of the data.
Based on the result obtained, there is a positive relationship between Money Supply, Inflationary Ratio, Exchange Rate, and Foreign Exchange earnings used as a proxy for foreign trade; and a negative relationship between Interest Rate and Liquidity Ratio on Foreign Exchange Earnings. Money Supply, Interest Rate, Exchange Rate, Inflationary Ratio and Liquidity Ratio on Foreign Exchange Earnings are able to explain 83.4% of the total variation in foreign exchange earnings.
CONCLUSION
This research study has examined the impact of monetary policies on foreign trade in Nigeria economy. Based on the empirical result obtained, it is concluded that a clear-cut and obvious relationship existing between monetary policies and foreign trade in Nigeria, and thus recommended that conscious efforts should be made by government to fine-tune the various monetary variable in order to provide an enabling environment to stimulate foreign trade.
RECOMMENDATIONS
Based n the findings of this research work, it is necessary that conscious efforts should be made by government to fine-tune the various monetary variables in order to provide an enabling environment to stimulate foreign trade and in effect curtailing import trade which has a negative effect or strain on the economy.
REFERENCES
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