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Economics Project Topics

Impact of Exchange Rate on Economic Growth in Nigeria (1996-2020)

Impact of Exchange Rate on Economic Growth in Nigeria (1996-2020)

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Impact of Exchange Rate on Economic Growth in Nigeria (1996-2020)

CHAPTER ONE

RESEARCH QUESTION

The objectives of the study is to show the impact of exchange rate on gross domestic product and hence how this affect theย growthย of the country.

Theย sub-objectivesย are

  1. To determine the impact of exchange rate fluctuations on Nigeriaโ€™s growth
  2. To ascertain the effect of exchange rate on Nigerian

CHAPTERย TWO

LITERATURE REVIEW

DETERMINANTS OFย NIGERIAโ€™S EXCHANGE RATE

In terms of finance, exchange rate (also known as a foreign exchange rate, forex rate, ER, Fx rate or Agio) between two currencies is that rate at which on currency will be exchanged for another. It is also regarded as the value of one country’s currency in relation to another. In a commonest definition, exchange rate ‘ER’ is the price of a nationโ€™s currency in terms of another currency.

An exchange rate can be quoted in two ways, direct and indirect.

  1. Direct; the price of the foreign currency in terms of dollars.
  2. Indirect: the price of dollars in terms of foreign currency

SOME OF THE MAJOR TYPES OF EXCHANGE RATE ARE AS FOLLOWS:

  1. Fixed exchange rate system.
  2. Flexible exchange rate system.
  3. Floating exchange rate system.

Fixed exchange rate system:ย This refers to a system in which exchange rate for a currency is fixed by the government.

The basic purpose of adopting this system is; to ensure stability in foreign trade and capital movements.

To achieve stability, government undertakes to buy foreign currency when the exchange rate becomes weaker and sell foreign currency when the rate of exchange gets stronger.

Flexible exchange rate system:ย This refers to a system in which exchange rate is determined by forces of demand and supply of different currencies in the foreign exchange market.

In this exchange rate system, the value of currency is allowed to fluctuate freely according to changes in demand and supply of foreign. There is no official (government) intervention in the foreign exchange market. Flexible exchange rate is also known a ‘floating exchange rate.

Exchange rate movements is an important determinant of international transactions. Furthering, Ogunleye (2020) noted that the exchange rate in Nigeria has been principally influenced by external shocks resulting from the vagaries of world price of agricultural commodities and oil prices, both major sources of Nigeria export and foreign exchange earnings; ย ย contending that when the economy depended on agricultural exports, exchange rate volatility was less pronounced given the fact that these products were subjects to less volatility and that there were more trading partners involved in the calculation of the countryโ€™s exchange rate. This is minimally affected by the real exchange rate fluctuating by only 0.14% between 1970 and 1977. The increased dependence of the country on oil, resulted in several trade shocks from global oil price shock fluctuating the naira exchange rate by 10% between 1970 โ€“ 1985 (Ogunleye 2020). To Iyoha and Oriakhi (2002), movements in real exchange rate during this period were nominal shocks resulting from fiscal expenditure in ambitious development projects; and when the windfall ended, the government resorted to financing its expenditures through money creation. Thus expansionary monetary fiscal policy according to him, exerted upwards pressure on inflation, aggravating sharp movements in real exchange rate. From 1986, the adoption of the structural adjustment programme ย (SAP) ย became ย a ย contributory ย factor ย in ย shaping ย the dynamics of real exchange rate in Nigeria. One of the cardinal points of this policy was floating nominal exchange rate policy. As the naira was allowed to float the nominal exchange rate movement became more pronounced.

 

CHAPTERย THREE

RESEARCH METHODOLOGY

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MODEL SPECIFICATION

We shall employ the single equation technique of econometric simulation for this study. The model specification involves the determinant of the dependent and independent variables were included in the model the priori expectation of the signs and sizes of the parameters of the functions, the functional form of the model, the mathematical form of the equation.

The model that will be adopted is the classical least regression model that will be used (OLS). The choice of this method is predicted on the basic features of OLS (BLUE).

 

CHAPTERย FOUR

PRESENTATIONย ANDย ANALYSIS OFย RESULTS

PRESENTATIONย OFย RESULTS

Two models ย were ย estimated ย in ย this ย research ย work ย based ย on ย the ย topic ย the researcher is discussing. The models were estimated using the ordinary least square (OLD) method. The result of the models are presented below as thus;

CHAPTERย FIVE

SUMMARY OFย FINDINGS,ย CONCLUSIONย ANDย POLICY RECOMMENDATION

SUMMARYย OF FINDINGS

Thisย researchย workย isย meantย toย emphasize onย theย issueย ofย exchangeย rateย and itsย impactย onย internationalย trade, purchasingย powerย ofย averageย Nigerianย andย output growthย levelย ofย Nigeria.ย Thisย study investigatedย empirically onย twoย models.ย The firstย modelย investigatedย empirically,ย the impactย of variablesย suchย asย exchange rateย (ER),ย realย interestย rateย (INT)ย andย degreeย ofย tradeย opennessย (DOP)ย onย the GDP onย the economy.

  1. Exchangerateย hasย aย positiveย impactย onย GDPย both on short run and long run.
  2. Theinterest rate hasย a negative impactย onย GDP both on short run and long run.
  3. Degree of trade openness has a positive impact on GDP
  4. Exchange rate is positive relationship to output growth

CONCLUSION

Havingย conductedย thisย researchย inย theย studyย ofย exchangeย rateย stability onย economic growth,ย thusย thereย isย neededย toย maintainย aย stableย exchangeย rate.ย Usingย time,ย series data ย from ย 1996-2020, ย I ย estimated ย the ย effect ย of ย exchange ย rate ย on ย export performanceย inย Nigeria,ย ourย resultย showedย that export tradeย performanceย are influencedย by exchangeย rateย stability.ย Theย study showedย thatย Nigeriaย exchangeย rate stabilityย hasย aย positiveย andย significantย effectย onย exportย andย GDP,ย whichย is,ย if exports ย are ย sufficiently ย risk ย averse, ย and ย increase ย in ย exchange ย rate ย raises ย the marginalย utilityย ofย exportย revenueย andย thereforeย inducesย themย toย increaseย exports. A stableย exchangeย rateย willย curtailย inflation, increaseย export, maintainย aย favourableย balanceย of ย ย trade,ย andย helpย to solveย theย problemย ofย deficits andย increaseย the externalย reserveย of the economy.

POLICYย RECOMMENDATIONS

Sequel toย theย findingsย ofย thisย study,ย Iย specificallyย madeย theย followingย policy recommendationsย toย theย maintenanceย of stableย exchangeย rate.ย Toย controlย exchange rate,ย theseย policiesย have toย be adopted.

  1. 1. The government should create incentive such as loan subsidy etc, to small scale industries, thereby encouraging them to process on domestic goods into processed goods that will help boast our export.
  2. 2. ย The government should encourage the export promotion strategies in order to maintain a surplus balance of trad
  3. 3. ย An effective policy should be made based on the fiscal and monetary policies which should be aimed at achieving a realistic exchange rate for naira
  4. 4. ย An appropriate environment and infrastructural facilities should be provided so that foreign investors will be attracted to invest in Nigeria This will provide employment opportunities, increase the level of income and the standard of living of the people.
  5. 5. ย Strict foreign exchange control polices should be adopted in order to help in determination of appropriate exchange rate value This will go a long way to strengthen the naira.

REFERENCES

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  • Oleka,ย P.ย (2004). Macroย Economicsย theory andย practice,ย Lagos:ย CBNย Publication. Robert,ย J.ย C.ย (1998).ย Internationalย Economics.ย Unitedย States:ย Littleย Brownย and Companyย Inc.
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