Empirical Evidence of Export Responses to Exchange Rate Volatility in Nigeria.
Following the economic importance of export promotion for improved current account balance of an economy’s balance of payment, this study examines the export responses to exchange rate volatility in Nigeria.
The research built a VAR model transformed to VECM as well as ARCH and GARCH model and found out that exchange rate volatility has a long – term negative effect on Nigeria exports.
The result calls for policy actions to tackle rising exchange rate volatility. The research suggests emphasis on policies and mechanism that will ensure more stability of exchange rate in Nigeria.
TABLE OF CONTENTS
Title Page ———– i
Approval Page ——– ii
Dedication ——- iii
Certification ———— iv
Acknowledgement ————— v
Abstract ——– vii
Table of Content — viii
1.1 Background of the Study —–1
1.2 Statement of Problem ——– 3
1.3 Research Questions —— 5
1.4 Research Objectives ——– 6
1.5 Research Hpotheses ————– 6
1.6 Policy Relevance of the Study ———– 6
1.7 Scope of the Study ——————- 7
2.0 LITERATURE REVIEW
2.1 Theoretical Literature ————— 8
2.1.1 Overview of Exchange Rate Changes and Nigeria Exports ——– 16
2.1.2 Brief Review of Africa’s Trade and Export Performance —- 20
2.1.3 Understanding The Workings of Exchange Rate with World Trade Transactions —– 21
22.214.171.124 How Exchange Rate Works ———- 21
126.96.36.199 The Sport and the Forward Foreign Exchange Rate Market —————- 22
188.8.131.52 Determinants of Exchange Rates ———— 22
184.108.40.206 Exchange Rate Risks ——— 23
2.1.4 Export Diversification and Economic Growth ——— 24
2.2 Empirical Literature —— 25
2.3 Points Of Departure from Previous Studies and Motivation ———30
3.1 Broad Objective Model ——– 31
3.2 Volatility Test ———- 31
3.3 Model Specification ———- 32
3.3.1 Volatility Model ——-35
3.4 Unit Root Test ———– 36
3.5 Cointegration Test ——- 37
3.6 Causality Test ————- 39
3.7 Model Justification ——– 40
3.8 Estimation Procedure —– 40
3.9 Data source ————– 41
4.0 DATA REGRESSION AND ANALYSIS OF RESULTS
4.1 Unit Root Test ————- 42
4.2 Volatility Test —— 43
4.3 Causality Test for Objective 1 ——— 44
4.4 Cointegration Test for Objective 2 ——– 45
4.5 Vector Error Correction Estimates for Objective 3 ——— 46
4.6 Impulse Response ———- 47
4.7 Variance Decomposition ——48
5.0 SUMMARY OF RESEARCH FINDINGS, ECONOMIC IMPLICATION AND POLICY RECOMMENDATIONS
5.1 Summary of Research Findings —————– 49
5.2 Economic Implications of Research Findings —— 50
5.3 Policy Recommendations ———— 51
REFERENCES ————— 52
APPENDIX SECTION —
1.1 Background of the Study
Since the breakdown of the Bretton Woods fixed exchange rate system in the early 1970s, the effect of exchange rate volatility on trade flows and other macroeconomic variables has attracted a lot of attention.
Exchange rate is simply the rate at which one currency exchanges for another and its volatility is a statistical measure of the exchange rate tendency to rise and fall sharply within a short period and is important in understanding foreign exchange market behavior.
Be it nominal or real exchange rate, volatility creates uncertainty in macroeconomic policy formulation, investment decisions and international trade flows. (Anthony Musonda 2008).
The role of exports in economic development has been widely acknowledged. Exports refer to goods and services a country sends to other countries for sale.
It affects the current account balance of an economy positively and its payment involves converting one currency into another via exchange rate.
Ideally, export activities stimulate growth in a number of ways including improvement of balance of payment, production and demand linkages, economies of scale due to large international markets, increased efficiency.
Adoption of superior technologies embodied in foreign produced capital goods, learning effects and improvement of human resources, increased productivity through specialization as well as creation of employment (Maureen Were 2002).
Adubi, A.A and F. Okumadewa (1999); “Price, Exchange Rate Volatility and Nigeria’s Agricultural Trade Flows: A Dynamic Analysis”. Research Paper No 87, Africa Economic Research Consortium Nairobi.
Agosin, M.R. (2007); “Export Diversification and Economic Growth in Emerging Economies” Department of Economics, University of Chile, Working Paper NO 233.
Agosin, M.R. and C. Bravo-Ortega (2007); “The Emergence of New Successful Export Activities in Chile” Latin American Research Network, Inter- American Development Bank, Washinton DC.
Ajayi, S.I. (1988); “Issues of Overvaluation and Exchange Rate Adjustment in Nigeria” Prepared for Economic Development Institute (EDI), The World Bank, Washinton D.C
Allaire, J. (1999); “Dissenting Views on Target Zones for the G-3 Currencies” Report of an Independent Task Force on Foreign Relations, New York.
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