The result that there is a negative relationship between inflation rate and exchange rate in nigeria with f 6. Also, government expenditure, money supply, real interest rate, productivity index and openness of the economy influenced the real exchange rates volatility in. Ajao and igbekoyi 20 estimate and test the determinants of real exchange rate volatility in nigeria for the period 19812008 using the ecm technique. If the real exchange rate is 1, the burger would cost the same in the united states as in. Evidence from nigeria, authorokwuchukwu odili, year2015. Undervaluation and economic growth in selected developing countries, 19502004 china 0 4 2 6 8 0. Influence of real exchange rate and volatility on fdi inflow in nigeria saidu d. Market capitalization of the nigeria s stock market does not significantly influence fdi in nigeria. Modelling the impacts of remittances on real exchange rate. The study also established that a one per cent depreciation in the exchange rate.
The results showed that surprises in real exchange rate depreciation actually boosted output growth, but that depreciations of the level of the real exchange rate exerted a contractionary effect. This paper investigates the determinants of real exchange rate volatility in nigeria from 1981 through 2008. The study examines the determinants of real exchange rate in the recent years in nigeria over the period of 1970 to 2006 using the nigerian time series data. Real exchange rate volatility, economic growth and international trade in an emerging market economy. The impact of exchange rate fluctuation on the nigerian. On the other hand, the overvalued exchange rate enhanced imports thereby exacerbating the already precarious balance of payment position. The real exchange rate, in particular, defined as the relative price of foreign goods in terms of domestic goods, is of greater significance, as it is an. Flow of fdi and exchange rate in nigeria 19702014 a good number of authors have argued the importance of exchange rate and its volatility towards fdi inflow. Theoretical underpinnings theoretical arguments for volatility effects are broadly divided into production flexibility arguments. Obafemi department of economics university of calabar p.
It may be expressed as nominal exchange rate or real exchange rate. Asher 2012 examined the impact of exchange rate fluctuation on the nigeria economic growth for period of 1980 2010. These areas may yet prove to be viable options for future research in exchange rate in nigeria. Empirical investigation on exchange rate volatility and trade. Rer is defined as the relative price of tradeables to nontradeables, and rer misalignments are derived using a model based approach and the purchasing. It is the price of one currency in terms of another currency jhingan, 2005. Omojomite and akpokodje 2010 investigated the effect of exchange rate reforms on nigerias trade performance during the period 19862007. Exchange rate volatility has no significant impact on fdi inflow to nigeria. The determinants of real exchange rate volatility in nigeria ajao, mayowa g. Though nigeria real effective exchange rate fluctuated substantially in recent years, it tended to increase through 1999 2018 period ending at 109. Effects of exchange rate fluctuations on economic growth. The determinants of real exchange rate in nigeria citeseerx. Its usually expressed as the domestic price of the foreign currency. Nigerian naira 19952020 data 20212022 forecast quote.
The nominal exchange rate is the number of unit of domestic currency that must be given up to get a unit of foreign currency. The results confirm the satisfaction of the marshalllerner condition in nigeria, implying that depreciation of the exchange rate has a positive effect on trade balance in the long run. The naira exchange rate depreciation and volatility is among the vast macroeconomic maladjustments which have unfolded in the nigerian economy in the. Therefore, this study adopted time series econometrics analysis and descriptive statistics to ascertain the impact of exchange rate. A granger causality impact assessment find, read and cite all the research. The impact of exchange rate fluctuations on private domestic. Exchange rate is the price of one unit of the foreign currency in terms of the domestic currency. Between 1978 and 1982 there was an upsurge of exchange rate which was due to the. This report analyses the effects of real exchange rate rer movements defined in terms of misalignment and volatility on the growth of nonoil exports in nigeria over the period 19601990. Section i describes the process of adjustment to an oil boom. Munich personal repec archive oil price and exchange rate volatility in nigeria ogundipe, adeyemi and ogundipe, oluwatomisin covenant university, ota, ogun state. The us is the most important trading partner and political ally of nigeria. Official exchange rate refers to the exchange rate determined by national authorities or to the rate determined in the legally sanctioned exchange market.
Pdf exchange rate policy and nigerias economic growth. Nigerian naira data, forecasts, historical chart was last updated on february of 2020. It is an issue taken up in a large number of recent studies in the developed nations. Empirical investigation on exchange rate volatility and. Shehu 2009, assessed the impact of oil price shock and real exchange rate volatility on real economic growth in nigeria on the basis of quarterly data from 1986q1 to 2007q4. This rate or priceparity is determined by the market forces, which indicates the trust and confidence in the economic situation of a country. Significance of the study the significance of this study are as follows. This paper examines the impact of real effective exchange rate misalignment on economic growth in nigeria using an annual data spanning 1960 to 2011. This suggests a promising avenue of future research, i. Pdf real exchange rate volatility, economic growth and. What are the determinants determining factors of real exchange rate in nigeria. Exchange rate movement the average afem intervention rate which closed at n82. This study examines the real exchange rate instability and foreign private investment in nigeria. Forex rates, interest rates, and inflation are all correlated.
Trend of exchange rate and private domestic investment in nigeria 1 9 8 1 1 9 8 6 1 9 9 1 1 9 9 6 2 0 0 1 2 0 0 6 2 0. Department of economics alhikmah university, ilorin abstract the paper investigates the effects of real exchange rate misalignment on capital inflow in nigeria between the year 1960 and 2011. Exchange rate refers to the rate at which one currency exchanges for another jhingan 2003. The economy of nigeria is faced with fluctuations in real growth rates, price inflation, investment per capita, government revenue per capita and real exchange rate. Request pdf the determinants of real exchange rate volatility in nigeria the naira exchange rate depreciation and volatility is among the vast. Real effective exchange rate is the nominal effective exchange rate a measure of the value of a currency against a weighted average of several foreign currencies. Nigeria overall economic performance since independence in 1960 has been decidedly unimpressive.
Effect of exchange rate fluctuations on manufacturing sector. Real effective exchange rate misalignment in nigeria. Effect of exchange rate fluctuations on manufacturing. The exchange rate is the rate at which one currency is exchanged for another. Real exchange rate misalignment and economic growth in nigeria. Section ii presents data on nigeria and indonesia and compares their policies. Equilibrium real exchange rate and capital flows in nigeria 19602011 ibrahim w. Exchange rate fluctuation on nigeria economic growth. Pdf on jan 1, 2017, felicia akujinma anyanwu and others published exchange rate policy and nigerias economic growth. B 1115, calabar nigeria abstract the study estimated the effect of exchange rate on the balance of trade of nigeria for the period 19702012 using annual data. Empirical investigation on exchange rate volatility and trade flows in nigeria 26 by the ratio of total trade to nigerias gross domestic product gdp, nigeria is considered to be moderately integrated with a ratio of 45. Abstract this study investigated the empirical evidence on the effect of exchange rate volatility on foreign direct investment fdi in nigeria, using secondary time series data from1970 to 2004. Most people are familiar with the nominal exchange rate, the price of one currency in terms of another. Hooper and mann 1989 and blundellwignall and browne 1991 spearheaded the works on fundamental determination of the real exchange rate.
The global pursuit of financial inclusion as a vehicle for economic development had a positive effect in nigeria as the exclusion rate reduced from 53. The study was carried out given that exchange rate reform combined. In other word, nominal exchange rate is the price of domestic currency in term of foreign currency. Between 1970 and 1977, there was stability in both prices and exchange rate of cocoa export in nigeria. Following literature, we identified the potential determinants of real exchange rate as lag of real exchange rate, real interest rate, inflation rate, trade openness and. Abstract this report analyses the effects of real exchange rate rer movements defined in terms of misalignment and volatility on the growth of nonoil exports in nigeria over the period 19601990. In this study the longrun relationship between real oil price, real effective exchange rate and productivity differentials is examined using annual data for nigeria over the period 1980 to 2010. Munich personal repec archive real exchange rate and economic growth in ghana mwinlaaru, peter yeltulme and ofori, isaac kwesi department of economics, university of cape coast 3 november 2017 online at mpra paper no.
Trading economics members can view, download and compare data from nearly 200 countries, including more than 20 million economic indicators, exchange rates, government bond yields, stock indexes and. One can measure the real exchange rate between two countries in terms of a single representative goodsay, the big mac, the mcdonalds sandwich of which a virtually identical version is sold in many countries. Influence of real exchange rate and volatility on fdi inflow. Exchange rate volatility, stock market performance and. It could also be noted that the unctad, world investment reports, announced a rise in global fdi by 9% with africa sharing. Increases in interest rates cause a countrys currency to appreciate because higher interest rates provide higher rates to lenders, thereby attracting more foreign capital, which causes a rise in exchange rates. Specific content for the schematic asset price model of the exchange rate is provided in sec. In a similar study, akpan 2008 investigated foreign exchange. The movement in the domestic output of the nigerian industrial sector is dominated by fluctuation in real exchange rate. Foreign direct investment and exchange rate volatility in nigeria osinubi, tokunbo s. Exchange rate fluctuation on nigeria economic growth is an important economy metric as it reflects underlying strength and competitiveness with world economies asinya and takon, 2014. Naira in relation to dollar ns, while the real exchange rate is a real.
The study also established that a one per cent depreciation in the exchange rate would improve trade balance by 1. A causality analysis 1986 2008, authorbethran enyim okulegu and sylvester nwigwe ogbueghu and paul. Shehu 2009, assessed the impact of oil price shock and real exchange rate volatility on real economic growth in nigeria on the basis of quarterly data from 1986q1 to. The determinants of real exchange rate volatility in nigeria. However, the usd is much stronger compared with the ngn, because the us holds a much higher development index meaning that more money is. Changes in interest rate affect currency value and dollar exchange rate.
Thus exchange rate is the price of one currency in terms of another currency or other currencies. Modelling the impacts of remittances on real exchange rate of nigeria s naira. Also, it was revealed that there is a positive relationship between gross domestic product, inflation rate and exchange rate in nigeria with f 10. This was as a result of controlled export prices by the nigeria commodity board. For example, the nigeria naira has exchange rate against the u. The findings also shows that there is strong relationship between inflation and economic growth in nigeria, that exchange rate has positive impact on economic growth and that high interest rate discourages investment and hence forestalls economic growth. Nigerias inward fdi flow significantly increased by 46. Estimating the determinants of nigerias real exchange rate dynamics 309 a 2 country general equilibrium model a nd the theoretical rel ationships among the realexchange. Nigeria real effective exchange rate index 2010 100 in 2018, real effective exchange rate for nigeria was 109. Concepts, measurements and assessment of competitiveness bangkok november 28, 2014. Nigeria 47 various degrees of trade liberalization recorded in nigeria between 1960 and 2000 on the real exchange rate to see what support it provides for the theory of real exchange rate. Nigeria exchange rate naira depreciates drastically following scrapping of currency peg in june. Following literature, we identified the potential determinants of real exchange rate as lag of real exchange.
Real exchange rate distortions and external balance. The result showed that real exchange rate has a positive effect on the economic growth. The real exchange rate of nigeria naira has significant effect on domestic output growth. Impact of real exchange rate on trade balance in nigeria. Macroeconomic implications of nigeria s interest and exchange rate management experiences. In 2018, real effective exchange rate for nigeria was 109. This paper investigates the impact of naira real exchange rate misalignment on nigerias economic growth using quarterly data spanning the period 2000. The impact of exchange rate on nigeria nonoil exports. Pdf on jan 1, 2017, felicia akujinma anyanwu and others published exchange rate policy and nigeria s economic growth. Impact of exchange rate fluctuation on nigerias economic growth 19812015, full project materials.
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