The Impact of Exchange Rate Fluctuation on Economic Growth in Nigeria (1986-2023)

Abstract

The study examined the impact of exchange rate fluctuation on economic growth in Nigeria from 1986 to 2023. The stationarity test confirmed that all the data employed in the study were not stationary at levels but became stationary after the first differencing. Furthermore, the results showed a long-term relationship between real gross domestic product (RGDP), exchange rate (EXR), foreign direct investment (FDI), trade openness (TO), public expenditure (PEX), and interest rate (INT) in Nigeria during the study period. This confirmed a long-run relationship between exchange rate fluctuation and economic growth in Nigeria. The Granger causality test revealed a unidirectional causality between exchange rate (EXR), and real gross domestic product (RGDP), where causality ran from exchange rate fluctuation to foreign direct investment (FDI) without feedback. Additionally, the empirical analysis from the Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model indicated that exchange rate fluctuation negatively and significantly impacted RGDP. Moreover, foreign direct investment (FDI) and trade openness (TO) had a positive and significant influence on RGDP in Nigeria during the study period. Based on these findings, the study concluded that exchange rate fluctuation negatively and significantly affected foreign direct investment in Nigeria. Consequently, the study recommended that monetary authorities harmonize the exchange rate system to promote stability. Furthermore, given the unidirectional effect of exchange rate fluctuation, the government should adopt stabilizing macroeconomic policies to mitigate its negative impact on the economy.

Keywords: Economic Growth, Exchange Rate Fluctuations, Fixed Exchange Rate, Floating Exchange Rate, Structural Adjustment Programme

DOI: 10.7176/JESD/17-4-03

Publication date: June 30^th 2026