Evaluating the Granger Causality Effect of Exchange Rate On Nigerian Balance of Payment: A Granger Causality Analysis
Downloads
A country’s exchange rate and balance of payment is usually regarded as a signal by which a nation’s strength can be measured especially its economic strength. Exchange rate plays a major role in countries international trade because no nation can remain in autarky due to varying factor endowments of different economies of the world. Nigerian economy continue to experience chronic deficit on the balance of payment account, fall in the price of Naira and face many difficulties in monetary actions, fall in gross domestic product due to over-dependency on imported products, reliance of revenues from oil exports, massive imports of refined petroleum and other related products. The main objective of this study is to evaluate the granger causality effect of foreign exchange rate on Nigeria balance of payment. The study employed secondary data which was obtained from Central Bank Statistical Bulletin and National Bureau of Statistics within the period of 1970-2014. The data obtained were subjected to ordinary least squares regression technique and granger causality analysis.
The results revealed that exchange rate and money supply have positive effect and significantly affect Nigeria balance of payment at 5% significant level. Money supply, real gross domestic product, consumer price index and interest rate have negative effect but insignificant on Nigeria balance of payment at 5% significant level. Exchange rate and balance of payment granger cause each other, since their P<0.05.
The study therefore recommends that Nigeria government should create enabling environment for foreign investors, make funds available for domestic investors in order to increase local production, diversification of the economy to agricultural sectors, restriction on importation of products that can be produce locally and relevant monetary policies to curb exchange rate pressure.
The study concluded that there is high propensity for Nigeria economy to achieve favorable balance of payment if the above recommendations are implemented
Afolabi, L. (1999). Monetary Economics. Lagos: Heinemann. Anifowoshe, C. A. (1997). Management of foreign exchange: A peep into the next decade. Bullion, 21(4), 17-24.
Anifowose, O. K. (1994). Allocation and management of foreign exchange. The Nigerian experience. The CBN Bulletin, 18(4), 23-42
Beatrice, K. M. (2001). Long-run and short-run determinants of the real exchange rate in Zambia. Working Papers No 40. Citedat http://www.handels.gu.se/econ/
Central Bank of Nigeria (1997). Globalization and national economic development." Central Bank Annual Report, December.
Cheung, Y., Chinn, M. D., & Fujii, E. (2007). The overvaluation of the Renminbi undervaluation. Journal of International Money and Finance, 26(1), 762-785.
Cooper, R.N. (1978). Flexible exchange rate and stabilization policy. Scandinavian Journal of Economics, No.2.
Dhliwayo, R. (2006). The balance of payments as monetary phenomenon: An econometric study of Zimbabwe’s experience. African Economic Research Consortium 46.
Dubas J. M. (2009). The importance of the exchange rate regime in limiting misalignment. World Development, 37 (10), 1612-1622.
Dubas, J.M., Lee, B.J., & Mark, N.C. (2005). Effective exchange rate classifications and growth. NBER Working Paper No. 11272
Dufrenot, G., & Yehoue, E. (2005). Real exchange rate misalignment: A panel co-integration and common factor analysis. IMF Working Paper 05/164. Washington, DC: IMF
Gbosi, A. N. (2005). Money, monetary policy and the economy. Port Harcourt: Sodek.
Harris R.G. (2002). New economy and the exchange rate regime. Center for International Economics Studies, Discussion Paper, No 111
Iyoha, M.A. (1996). Macroeconomic policy management of Nigeria's external sector in the post SAP period. Nigeria Journal of Economic and Social Studies,38(1).
Khan, M. A., & Lizondon, J.S (1987). Devaluation, fiscal deficits and the real exchange markets in developing countries: World Bank Economic Review,1(2). Washington, World Bank.
Mordi, M.C. (2006). Challenges of exchange rate volatility in economic management of Nigeria. In the dynamics of exchange rate in Nigeria, CBN Bullion, 30(3), July-September, 17-25.
Monetary and Keynesian Theories of Fiscal Policy. Retrieved January 14, 2012 from http://en. wikipedia.org/wiki/fiscal
Nwani, V. (2006). Determinants of balance of payment fluctuation in Nigeria. Global Deposit Net, Paper series, 1-17.
Obansa, S. A. J., Okoroafor, O. K. D., Aluko, O. O., & Millicent, E. (2013). Percieved relationship between exchange rate, interest rate and economic growth in Nigeria: 1970-2010. American Journal of Humanities and Social Science, 1(3), 116-124.
Ogiogio, T. M. (1996), "Impact of external sector Policies on Nigeria’s economic development” Central Bank of Nigeria Economic and Financial Review,34(4), December.
Ogun, O. (2006). Real exchange rate behaviour and non-oil export growth in Nigeria. African Journal of Economic Policy, 11(1), June.
Obaseki, A. E. (2000). Balance of payments: Issues and crises. Bullion, 20(3), 130-131.
Obadan, M. I. (1996). Impact of external sector policies on Nigeria's economic development Central Bank of Nigeria. Economic and Financial Review, 34(4), December.
Obaseki, P.J. (1991). Foreign exchange management in Nigeria: Past, present and future. CBN Economic and financial Review, 29(1), Lagos. Central Bank of Nigeria.
Odusola, A., & Akinlo, E. (2006). Economics of exchange rate management. In the dynamics of exchange rate in Nigeria. Central Bank of Nigeria Bullion,(30)3,38-43.
Ojo, M. O. (1990). The management of foreign exchange resources in Nigeria. CBN Economic and Financial Review,(28)3,43-78.
Ojo, J. A. (2008). Impact of tax incentives on foreign direct investment in Nigeria. International Journal of Investment and Finance, 1(1&2), 34-39.
Olisadebe, E.U (1991). An appraisal of recent exchange rate policy measure in Nigeria. CBN Economic and Financial Review, (29)2, 23-35.
Sodestine, B.O. (1998). International Finance, London: Macmillian Education Ltd., 2nd ed.
Takaendesa, P. (2006). The behaviour and fundamental determinants of real exchange rate in South Africa. A Masters Thesis Submitted to Rhodes University, South Africa.
Umer, M., Abro, S., & Ghazali, H. (2010). The balance of payments as a monetary phenomenon: Econometric Evidence from Pakistan. International Research Journal of Finance and Economics,38.
