The Impact of Exchange Rate Regimes on Economic Growth in Nigeria

Abstract

The choice and management of an exchange rate regime is a critical aspect of economic management to safeguard competitiveness, macroeconomic stability, and sustainable development. But rather, the country has continued to be at disadvantage in terms of macroeconomic performances as the different regimes have been accompanied by instability and uncertainties, hence the need for the present study to examine the relationship between exchange rate regimes and output growth in Nigeria in different periods from 1970 to 2014. The study employs the Generalized Method of Moments (GMM) to estimate economic growth equation as a result of endogennity problem. In contrast with previous findings, ours study strongly suggest that exchange rate regimes indeed matter in terms of real economic performance in Nigeria as the results reveal that deregulated exchange rate regime spur economic growth in Nigeria as against the whole period and fixed exchange rate regime. All in all, the findings suggest that fixed exchange rates constrain the performance of the Nigerian economy as real exchange rate depicts inverse relationship with economic growth during the whole period and period of fixed exchange regime. It is against this background, that we recommend the sustainability of the regime of exchange rate liberalization that has been in operation from 1986

Keywords: Exchange Rate, Monetary Policy, Fiscal Policy, Economic Growth, Endogeneity

JEL Codes: D51, E52, E62, O4, and C26