An Empirical Evaluation of the Impact of Exchange Rate on the Nigeria Economy

Abstract

The research is aimed at empirically evaluating the impact of exchange rate on the economy. Economic induces such as exchange rate and inflation rate were considered in determining change in Gross Domestic Product (GDP) in Nigeria.

Secondary data collected from Annual Reports of Central Bank of Nigeria (CBN), Nigerian Stock Exchange (NSE), and Nigeria Securities and Exchange Commission (SEC) were analysed through the multiple regression analysis using the Ordinary Least Squares (OLS) method. The result shows that the two factors – exchange rate and inflation rate- impact significantly on the Gross Domestic Product and economic growth of Nigeria.

Exchange rate has a negative impact on the GDP because as it increases, the economic growth is negatively affected, while inflation rate exerts a positive impact on GDP, indicating that firms are more willing to produce when inflation rate is high and vice versa.

In order to enthrone a favourable exchange rate that would boost the nations GDP, the government is therefore advised to make Nigerian economic climate investment friendly by restoring security of lives and property, infrastructural development and improvement of local production in order to reduce the pressure on the dollar. This would go a long way to boost the exchange rate in favour of the naira and hence improve the Gross Domestic Product.

KEYWORDS

(1)   Exchange rate: - This is the rate at which a currency is exchanged for             another currency.

(2)   Foreign Exchange Market: - This is a market for trading in foreign  currencies and other financial instruments available for international       transactions.

(3)   Economic growth: - This refers to the increase in the Gross                Domestic Product (GDP) or national output or national income of a country.

(4)   Bureau De Change: - A company or an agent that provides lowvalue foreign exchange services for foreign           transactions.