EFFECT OF REAL EXCHANGE RATES ON ECONOMIC GROWTH OF NIGERIA (1960-2016)

Godfrey Chinweobi Ezenwakwelu

Abstract


This study on the effect of real exchange rates on economic growth of Nigeria was conducted for the period 1960 - 2016 to determine the nature of the relationship between real exchange rates and economic growth as well as ascertain the causal relationship between them. Annual time series data sourced from World Development Indicators and Central Bank of Nigeria Statistical Bulletins were used in this study. The problem was that the real exchange rate of Naira was far from being competitive and was both unstable and unsustainable to the economic growth of Nigeria as it had neither substantially promoted exports nor reduced imports. Ordinary least squares were employed to estimate the multiple regression models with the aid of Eviews application software for windows version 9, followed by Pairwise Granger causality test and robustness tests. Major findings were that real exchange rates had insignificant relationship with economic growth under the fixed exchange rates regime; but had significant negative effect on economic growth; significant negative relationship with savings and significant positive relationship with real interest rates under the free exchange rates regime. Granger Causality results showed that no causal relationship existed between real exchange rates and economic growth under both fixed and real exchange rates regimes and for the whole period.  The conclusion was that real exchange rates had neither a significant effect nor a causal relationship with economic growth.   The main recommendations are: to sustain free exchange rates regime as it has been more beneficial to our economic growth; not to reintroduce fixed exchange rates regime again; to maintain competitive real interest rates and continually promote savings to attract investments and promote economic activities.


Keywords


Real Exchange Rates, Economic Growth, Central Bank of Nigeria and World Development Indicators.

Full Text:

PDF

References


Abu, D., Ahmed, E.M., Amasaied, S.W., & Elgazoli, A.I. (2014). The real effective exchange rate impact on ASENA-5 economic growth 3: 174, doi:10. 4172/2162 – 6359.1000174. International Journal of Economics & Management.

Acar M. (2000). Devaluation in developing countries : Expansion or concrationary .Journal of Economic and Social Research 2 (1), 59 – 83

Adeniran, J.O., Yusuf, S.A., & Adeyemi, O.A. (2014). The impact of exchange rate fluctuations on the Nigerian economic growth: an empirical investigation. International Journal of Academic Research in Business and Social Sciences, 4(8).

Akpan, E.O., & Atan, J.A. (2012). Effects of exchange rate movements on economic growth in Nigeria. CBN Journal of Applied Statistics, 6(2).

Ali, A.I., Ajibola, I.O., Omotosho, B.S., Adetuba, O.O., & Adeleke, A.O. (2015). Real exchange rate misalignment and economic growth in Nigeria. CBN Journal of Applied Statistic 6(2), 103 – 131.

Amadeo, K. (2017). What is real gdp? How to calculate it vs-nominal. Retrieved from .balcne.com/what is real gdp-how-to-calculate-it-vs-nominal 3306040.

Attah-Obeng, P., Enugu, P., Osei-Gyimah, F., & Okpoku, C.D.K (2013). An economic analysis of the relationship between GDP growth rate and exchange rate in Ghana. Journal of Economic and Sustainable Development 4(9). Retrieved from http://iiste.org/Journals/index.php/JEDS/article/view/6473

Deeviya, P., & Gisele, M. (2018) .Relationship between real exchange rate and economic growth: the case of South Africa. Journal of Economics and Behavioural Studies, 19 (1), 146 - 158

Dwivedi, D.N. (2008). Managerial economics (7th ed.) New Delhi: Vikas Publishing House PVT.

Emefiele, G. (2017). Re- introducing and operationalizing Nigeria’s flexible exchange ratemarkethttps://www.cbn.gov.ng/out/2016/sd/reintroducing%20and%20operationalizing%20nigeria%20flexible%20exchange%20rate%20market.pdf

Esezobor, E.A. (2004). International finance. Lagos: The CIBN Press

Eze, T. C., & Okpala, C.S. (2014). Quantitative analysis of the impact of exchange rate policieson Nigeria’s economic growth: a test of stability of character. International Journal of Humanities and Social Sciences, 4(7), 265 – 272. http://seahipaj.org/journals2016/IJIFER/full/IJIFER-J-1-2016.pdf

Fapetu, O., & Oloyede, J.A. (2014). Foreign exchange management and the Nigerian economic growth. European Journal of economics, 78, 200-224.

Green, W.H. (2000). Econometric Analysis (4th ed.). New Jersey: Prentice-Hall.

Habib, M.M., Mileva, E., & Stracca L. (2016). The real exchange rate and economic growth: Revisiting the case using external instruments. ECB Working Paper Series (1921). https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1921.en.pd

Hua, P.C. (2011). The economic and Social effects of real exchange rate: evidence from the Chinese provinces. International Conferences on Social Cohesion and Development, 20 – 21. Retrieved.

Izatov, A. (2015). The role of oil prices, the real effect exchange rate and inflation in economic activity of Russia: An empirical Investigation. Eastern European business and economic Journal, 1(3), 48 – 70. Retrieved from http://eebej.eu/2015v1n3/48-70.pdf

Jhingan, M. L. (2003). Macroeconomic theory (11th rev. ed.). Delhi: Vrinda Publication

Jones, E.W.S. (2012). Exchange rate depreciation and the South African economy – Growth, inflation and interest rates (Master’s thesis). University of Kwazulu. Retrieved from

Mahmoudinia, D., Soderjani, E. S., & Pourshahabi, F. (2011). Economic growth, tourism receipts and exchange rate in MENA Zone. Using panel causality techniques. Iranian EconomicReview, 15(29). Retrieved from http://ebooks.ien.bg.ac.rs/385/1/2010_3_4_2.pdf

Mora, A, Rozilee, A., Joratin, L., & Dillah, M. ( n.d ). The effect of exchange rates on economic growth in Malaysia: empirical testing on nominal versus real. http://www.academia.edu/20301007/The_Effect_of_Exchange_Rates_on_Economic_Gr owth_i

Neter J., Kutner, M.H., Nachtscheim, C.J., & Wasserman, W. (1996). Applied Linear statistical Models. Chicago, U.S.A.: Irwin Company, 127.

Ngerebo-a, T. A., & Ibe, R. C. (2013). Exchange rate and macroeconomic performance in Nigeria: a causal post structural adjustment programme investigation. Global Journal of Management and Business Research Finance, 13(7).

Nzotta, S. M. (2004). Money, banking and finance: Theory and practice (2nd ed.). Owerri: Hudson Judes Nigeria Publishers.

Rodrik, D. (2007). The real exchange rage and economic growth: Theory and evidence. Retrieved from www.upenn.edu/provot/images/upheads/Rodrik.pdf.

Obi, K.O., Oniore, J.O., & Nnadi, K.U. (2016). The impact of exchange rate regimes on economic growth in Nigeria. Journal of Economic and Sustainable Development, 1(12).

Okorontah, C.F., & Odoemena, I.U. (2016). Effect of exchange rate fluctuations on economic growth of Nigeria. International Journal of Innovative Finance and Economic Research, 4 (2). Retrieved from http://seahipaj.org/journals-ci/june-2016/IJIFER/full/IJIFER-J-1-2016.pdf

Papanikos, G. T. (2015). The real exchange rate of Euro and Greek economic growth. The Journal of Economic Asymmetries, 12, 100 – 109.

Petreski, M. (2009). Exchange rate regime and economic growth: a review of the theoretical and empirical literature. Economics. The open – Access, Open- assessment E- Journal. Discussion, Papers 2009 – 2. http://www.economics- ejournal.org/economics/discussionpapers/2009-31/file Salvatore. The EURO-dollar rate defies prediction. Journal of Policy Modeling, 27(4).

Sfaxi, H., Antipolis, S., & Grdjan, R. (2010). Exchange Policy and economic growth: effect of the real exchange rate misalignment on the growth of Tunisia. Economic Analysis, 43(4), 15 – 28.

Shafik, K. R. & Liu, H. (2014). Oil Price Fluctuations and its impact on Russian’s economic: an exchange rate exposure. Asian Journal of Economic Modeling, 2 (4), 167 -177.

Sibanda, K., Newadi, R., & Mlambo, C. (2013). Investigating the Impacts of real exchange rates on economic growth: a case study of South Africa. Mediterranean Journal of Social Science, 13(4).

Tarawalie, A., (2010). Real exchange rate behavior and economic growth: evidences from Sierra Loans. South African Journal of Economic and Management Sciences, 13(1).

Trung, V., & Vinh, N.T.T. (2011). The impact of oil prices, real effective exchange rate

and inflation on economic activity: Novel evidence for Vietnani. Discussion paper series, Research institute for Economic and Business Advances Patien, Kobe University. Retrieved from http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2011-09.pdf


Refbacks

  • There are currently no refbacks.