Exchange Rate Fluctuations and Economic Growth in Nigeria: An Empirical Investigation

Abstract

This study examines the effect of exchange rate fluctuations on economic growth in Nigeria using annual data for the period 1970-2016. Specifically, the study seeks to: investigate the existence of a long-run relationship between exchange rate and economic growth in Nigeria; and determine the nature of the causal relationship between exchange rate and economic growth in Nigeria. The study employs the Johansen test of Co-integration, Error Correction Model, and the Granger Causality test to address the specific objectives. The study reveals that: there exists a long run relationship between exchange rate and economic growth in Nigeria. Furthermore, the Error Correction Mechanism (ECM) result reveals that it takes approximately two years for the disequilibrium in the long run trend of GDP to be corrected back to the equilibrium level. The Granger Causality Test reveals that there is no causality between economic growth and exchange ratein Nigeria. The study therefore recommends, amongst others, policies that will not only ensure a realistic and stable exchange rate but will also encourage local production to boost national output.