Exchange Rate Volatility And Economic Growth In Nigeria

Ugochukwu, Paul Ubah (2015) Exchange Rate Volatility And Economic Growth In Nigeria. Researchjournali’s Journal of Economics, 3 (3). pp. 1-15. ISSN 2347-8233

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Abstract

This study seeks to evaluate the effect of exchange rate volatility on economic growth in Nigeria on the basis of annual data from 1980 to 2012. A review of the literature reveals that exchange rate volatility can have either positive or negative effect on economic growth. The empirical analysis began with testing for stationarity of the variables by applying the Augmented Dickey-Fuller (ADF). This was followed by co-integration test of the model. The unit root test results show that all variables were integrated at order one, that is I(1)). Also, co-integration analysis indicated that variables are co-integrated. Employing the Generalised Autoregressive Conditional Heteroscedasticity (GARCH) technique to generate exchange rate volatility, the relationship between exchange rate volatility and economic growth was estimated. Findings further show that in the short run, economic growth is negatively responsive to exchange rate volatility in Nigeria case while in the long run, a negative relationship exists between the two variables in the Nigerian economy. The result also indicates that foreign direct investment depresses economic growth in Nigeria. Thus, the huge inflow and stock effect of rising foreign direct investment is not felt while the output effect is evidenced in factory closure and re-location to neighbouring countries. The study recommends control of import content of both public and private expenditure, greater diversification of the economy through investment in key productive sectors of the economy to guard against the vicissitude exchange rate volatility.

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