Exchange Rate Reform and the Dynamics of Net-Export in Nigeria


In this paper, the short- and long-term empirical relationship between net-export and exchange rate variation in Nigeria was estimated using error correction model (ECM) and Fully-Modified least squares (FM-OLS) for the period, 1986-2017. The impacts of degree of openness and tariff on net-export were equally examined over the study period. Prior to the actual estimation of the model, the series were subjected to unit root test using Phillips-Perron method and the results that they are all first difference stationary. Additionally, the cointegration test result revealed that the linear combinations of the of the nonstationary series leads to long run relationship amongst them. The parsimonious ECM shows that the variables jointly exert significant impact on net-export in the short run. It was also observed from the error correction coefficient that any short run disequilibrium in the system can be reconciled at 53.47 percent to achieve long run equilibrium position. The estimated cointegrating regression model shows that nominal effective exchange rate exerts significant positive impact on net-export in the long run. Overall, the F-test result for joint significant of the series reveal that the all the variables are collectively important in influencing changes in net-export. On the basis of the findings, it is recommended that policy makers should ensure that exchange rate policy prevalent in the Nigeria economy is tailored towards making exports more competitive in the international market in order to boost net-export growth and maintain stability in the domestic economy.

Keywords: Degree of Openness, ECM and FM-OLS, Exchange Rate, Net-export, Tariff

Article Review Status: Published

Pages: 1-12 (Download PDF)

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