Exchange Rate Fluctuation and Export Performance in Nigeria
CHAPTER ONE
OBJECTIVES OF THE STUDY
The broad objective of the study is to determine impact of exchange rate fluctuations on export performance in Nigeria. Specifically, the study addresses the following objectives:
- To trace how oil export respond to exchange rate
- To trace how manufacturing export respond to exchange rate
- To trace how agricultural export respond to exchange rate
CHAPTER TWO
EXCHANGE RATE FLUCTUATION IN THE CONTEXT OF NIGERIAN ECONOMY
INTRODUCTION
The exchange rate arrangements in Nigeria have undergone significant changes over the past four decades. It shifted from a fixed regime in the 1960s to a pegged arrangement between the 1970s and mid1980s, and finally, to the various types of the floating regime since 1986, following the adoption of the Structural Adjustment Program (SAP). A regime of managed float, without any strong commitment to any particular parity, has been the predominant characteristic of the floating regime in Nigeria since1986 (Sanusi: 2004).
CHAPTER THREE
RESEARCH METHODOLOGY
The chapter discusses the analytical frame work data transformation, model specification, sources of data, and estimation procedure used for this research work.
ANALYTICAL FRAMEWORK OF THE MODELS USED
Multiple regression analysis used vector autoregressive (VAR) model will be the statistical framework for the research work. The choice of VAR model is based on the fact that it allows for joint estimation of relationships between exchange rate fluctuations and trade flows, as well as how past information relates to received fluctuations. Also, it assumes that the information relevant to the production of the respective variables is contained solely in the time series data of these variables and the disturbances uncorrected. More so, variance decomposition as an aspect of VAR is one of the most popular techniques for capturing the impulse response and transmission of shocks among the Variables.
Furthermore, the GARCH model is considered suitable to measure fluctuations because it will provide a rich class of possible parameterizations of Heteroscedasticity. Also, GARCH model is more parsimonious, and avoids over-fitting. More so, according to Qian and Varangis (1992), the advantages of this approach over other approaches are, first, the risk from exchange rate fluctuations is explicitly modeled and included as a regression in the trade value equation, thus, avoiding arbitrariness in defining the measure of fluctuation risk. Second, possible Heteroscedasticity will be taken into full account in the estimation process, hence avoiding the possibility of biased estimates of the test statistics. The estimation of fluctuations or volatility using the GARCH modeling technique a used by kroner and lastrapes (19910 will follow the process: first, we will obtain the residuals from the AR equation of the real exchange rate. Second, obtained, estimate the AR equation of the squared residuals to get a measure of fluctuations (Gujarati 2005).
CHAPTER FOUR
PRESENTATION AND INTERPRETATION OF
RESEARCH FINDINGS
The analysis of the results involves subjecting the parameter estimates of the model to stationary tests to determine their reliability or robustness.
CHAPTER FIVE
SUMMARY OF FINDINGS, RECOMMENDATION AND CONCLUSION
SUMMARYOF FINDINGS
This study has made some interesting findings, which were revealed through the variance decomposition and impulse response function. These finding are summarized as follows.
- As shown by IRF, shock to exchange rate has negative effects on both the manufacturing export and agricultural export in the first two periods but has positive effect to oil within the same period
- The IFR shows that exchange rate fluctuation is most detrimental to agricultural export compared to oil export and manufacturing export as it is shown to more negative effect compared to others
- The VDC shows that the exchange rate shock has lag effect on agricultural export, oil export and manufacturing export. That is, its effect starts after first
On the average, shock to exchange rate is being borne most by agricultural export, followed by manufacturing export while oil export is least affected
RECOMMENDATIONS
In order to address the problem of exchange rate fluctuations in the manufacturing, agricultural and all sector, and for the sector to meet expectations and contribute significantly to economic growth and development, the following recommendations will be useful. The need for local sourcing of raw materials and input through agriculture should be intensified. A technological policy aimed at developing a local engineering industry is advocated. By so doing, the link between agriculture and the manufacturing and oil sector will be established leading to expansion of export base which would attract more foreign exchange into the country. This could cumulate into high external reserves build-up and reduce adverse pressure and balance of payment.
Manufacturing activities should be encouraged by government by giving incentives and subsidies to local government and improving the technological and infrastructure development so as to increase the sector contribution to Gross Domestic product and employment within the country.
Change in exchange rate managed strategy should be allowed to run a reasonable course of true. Jettisoning strategies at will and on frequent basis has implication for exchange rate and obvious consequence for a sector that depends on foreign inputs.
The monetary authority (the Central bank of Nigeria) should wonder the unethical practices of some commercial bank which have resulted in much fluctuation in the rate of exchange. More stringent punitive measures have to be taken against the culprit banks.
CONCLUSION
The study empirically verified the effect of exchange rate fluctuations on the manufacturing, agricultural and all oil sectors. This is against the backdrop of the fact that exchange rate is a crucial variable and the manufacturing, agricultural and oil sector is expected to be the moving force in the drive towards industrialization. It is observed that the fact that Nigeria is highly dependent on the external sector for import of inputs has made the effect of exchange rate devaluation worse especially in manufacturing because capacity to import was constrained by the depreciating currency heading to a corresponding decline in output. It is pertinent to note that the devaluation of exchange rate in association with factors such as technology and human skills are necessary for a country to be established in the export market which are lacking in the case of Nigeria. The country should therefore, embark on improving basis amenities like, electricity, transportation, water supply, telecommunication, human resource development, instead of implementing policies in an unhealthy economic and social structure.
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