Exchange rate Fluctuation and Sustainable Economic growth in Nigeria: VAR Approach

Abstract

The essence of this research is to ascertain the relationship between real exchange rate and economic growth applying those variables that adjudged to make up equilibrium exchange rate thereby defining how interrelated are RER, GDP, EXP, IMP, FER and FDI. The major aim was to define how exchange rate fluctuation stimulates economic development in Nigeria from 2004 to 2014. Analysing the data using VAR technique, based on the prevailing situation in Nigerian economy within these period, one can envisage that RER fluctuation was significantly controlled by its positive relation with real import as well as its negative relation to real GDP and foreign direct investment. Similarly, GDP are positively controlled by depreciating exchange rate, increasing previous GDP, FER and FDI. Nigerian economic growth within these period were characterised by sustainable growth enhanced by sustainable increase in these factors. The inference being those investors, policy-makers and others of common interest should understand that Nigeria however, benefited from currency depreciation.

Key words: VAR, Real exchange rate, Nigeria, FDI