Effect of Exchange Rate Devaluation on Balance of Payment in Nigeria : Current School News

Effect of Exchange Rate Devaluation on Balance of Payment in Nigeria

Filed in Current Projects, Economics Project Topic by on October 19, 2020

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Effect of Exchange Rate Devaluation on Balance of Payment in Nigeria

ABSTRACT

This study evaluated the effect of exchange rate devaluation on balance of payment in Nigeria, using data spanning from 1981 – 2014.

The study utilized sufficient theoretical and empirical works to create sound background knowledge about exchange rate and balance of payment, to empirically investigate the desired phenomena,

the study adopted the error correction mechanism and the co-integration analysis to test for short – run and long – run relationship between our variables under the OLS framework.

in the course of this findings there exist a long run relationship between exchange rate and balance of payment in Nigeria.

The study revealed that exchange rate has a negative but significant relationship with balance of payment in Nigeria while the control variables (foreign direct investment and trade openness) have a positive and significant relationship with balance of payment in Nigeria for the period under review.

INTRODUCTION

Exchange rate is the price of one country’s currency in relation to another. In the era of trade liberalization, appropriate policy mix that ensures an effective rate of exchange is imperative because its variation has economic implications.

Variation in exchange rate is important endogenous factor that affects economic performance due to its impact on macro-economic rate policy and on appropriate exchange rate are crucial conditions for improving economic performance (Chang & Tan 2008).

According to Otaki (2005) balance of payment is a systematic record of all economic transactions, visible as well as invisible in a period between one country and the rest of the world.

Right from time immemorial, a country’s exchange rate and balance of payment is usually regarded as the sum of indices by which a nation’s strength can be measured especially its economic strength.

Paul (1996) defines balance of payments as an accounting record to all monetary transactions between a country and the rest of the world.

REFERENCE

Agbola, F.W. (2004) “Does devaluation improve Ghana’s trade balance? Contributed paper presented at the International Conference on Ghana’s Economy, MPlaza Hotel, Accra, Ghana, 18-20 July.

Akpan, I.P. (2008). “Foreign Exchange Market and Economic Growth in an Emerging Market: Evidence from Nigeria” African Economic Business Review, Vol 2.

Akpansung, A.O. (2013), „A Review of Empirical Literature on Balance of Payment as a Monetary Phenomenon‟. Journal of Emerging Trends in Economics and Management Sciences (JETEMS) 4(2): 124-132.

Alawattage, U. P. (2002). Exchange rate, competitiveness and balance of payments performance. Central Bank of Sri Lanka Staff Duties,34, 63–91.

Alexander, S.S. (1952). The Effect of a Devaluation on a Trade Balance. I.M.F. Staff Papers, 2, 2, 263-278.

Aliyu, S. U. R. (2009, July). Impact of oil price shock and exchange rate volatility on economic growth in Nigeria: An empirical investigation. Research Journal of International Studies,11, 4–15.

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