An Empirical Analysis of the Relationship between Exchange Rate Movements and Economic Growth in Nigeria

Abstract

This paper analyses the relationship between exchange rate movements and economic growth in Nigeria using annual data spanning 1970-2011. Specifically, it sought to: examine the relationship between exchange rate and economic growth; and also to determine the nature and the direction of causality between exchange rate and economic growth in Nigeria.  Employing the Ordinary Least Square (OLS) technique and the Granger Causality Test, the study revealed the existence of a positive and insignificant relationship between exchange rate and economic growth in Nigeria. The results also indicate that there is no causality between exchange rate and economic growth in Nigeria. In view of the fact that exchange rate stability is absolutely imperative for macroeconomic stability, the study recommends amongst others that government should adopt appropriate monetary and fiscal policies that will not only ensure a realistic and stable exchange rate but will also serve to foster economic growth in Nigeria.

Keywords: Exchange Rate, Economic Growth, Ordinary Least Square, Causality.