Exchange Rate Regimes and Real Sector Performance in Nigeria

Falana Olajide Emmanue

Abstract


Exchange rates and the choice of the exchange rate regime have critical influence on the real sector performance and the behaviour of several other macroeconomic variables, especially in a high import dependent economy like Nigeria. Exchange rate reforms put in place by the Nigerian monetary authorities have not put the economy on the path of macroeconomic stability, recovery and sustainable development. Arising from this problem, this study investigates the relationship between exchange rate and the performance of Nigeria’s real sector with emphasis on the agricultural, industrial, building and construction, wholesale and retail trade and service sectors over the period of 1961-2017. The study adopts the modified Mundell-Fleming IS-LM framework. Autoregressive Distributed Lag and pairwise Granger Causality techniques were used to examine the relationship between exchange rate regime and real sector output performance. The results of the study reveals a long-term inverse and significant relationship between exchange rate and aggregate real output in regulated exchange rate regime but a long-term direct and significant relationship in the guided deregulated regime. The study therefore recommends that the monetary authorities should re-assess and adequately monitor the existing exchange rate policies in Nigeria with a view to stimulating increased performance of the real sector of the economy. The exchange rate system adopted should be aligned with the overall macroeconomic policy structure and also takes into consideration the integrity of the institutional arrangements on which the country’s development and stability prospects depend. The government should also develop a broad programme of development of domestic industries in both rural and urban areas to enhance domestic production, exports, create employment and reduce poverty. There is also the need to implement coordinated macroeconomic policies that would attract foreign private investment, impact inflation positively and stimulate exchange rate stability.


Keywords


Exchange rate; Real output; Regulated and guided deregulated regime; Nigerian economy

Full Text:

PDF

References


Adeniyi, J. A. (2012). Employment effect of exchange rate volatility in Nigeria’s manufacturing sector. Journal of Economic Theory, 6(1), 14-25.

Ajao, M. G., & Igbekoyi (2013). The Determinants of Real Exchange Rate Volatility in Nigeria. Academic Journal of Interdisciplinary Studies, 2(1), 459-471.

Akinmulegun, S. O., & Falana, O. E. (2018). Exchange Rate Fluctuation and Industrial Output Growth in Nigeria, International Journal of Economics and Financial Research, 4(5), 145-158.

Akpan, E.O. &Atan, A.A. (2012). Effects of exchange rate movements on economic growth in Nigeria. CBN Journal of Applied Statistics, 2(2), 1-14.

Amoo, B. A. G., Odey, L. I., Kanya, W., Eboreime, M., Ekeocha, P., Akpan, N. I., & Ochu, E. R. (2014). Effects of monetary policy on the real economy of Nigeria: A Disaggregated Analysis. CBN Occasional Paper, 54, 1-65.

Ayodele, A.I. (2004). Real Sector policies in the 2004 Budget. CBN Bullion, 28(2), 41-48.

Barro, R. J., & Gordon, D. B. (1983). Rules, discretion, and reputation in a model of monetary policy. Journal of Monetary Economics, 12, 101-120.

Calvo , G. (1999). Fixed versus flexible exchange rates, preliminaries of a turn- of –millennium rematch. Nimeo: University of Maryland.

Campbell, O.A. (2010). Foreign exchange market and monetary management in Nigeria. Journal of Emerging Trends in Economics and Management Sciences (JETEMS), 1(2), 102-106.

Central Bank of Nigeria (2009). 50 Years of Central Banking in Nigeria, 1958-2008.

Central Bank of Nigeria (2016). Foreign exchange: Education in economics series, 4, 1-50.

Chang, l. l., & Tan, H. B. (2008). Exchange rate risk and macroeconomics fundamental, evidence from our neighbouring South East Asian economies. International Research Journal of Finance and Economics, 16, 88-99.

Dickey. D. & Fuller, W.A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica, 49(4), 1057-1072.

Dornbusch, R. (1976). Expectations and exchange rate dynamics. Journal of Political Economy, 84(6), 1161-1176.

Edwards, S., & Savastano, M. A. (2000). Exchange rates in emerging economies: What Do we know? What do we need to know? Anne O. Krueger (Ed.), Economic Policy Reform: The Second Stage (pp.453-510). Chicago: University of Chicago Press.

Eze, T. C., & Okpala, C. S. (2014). Quantitative analysis of the impact of exchange rate policies on Nigeria’s economic growth: A test of stability of parameter estimates. International Journal of Humanities and Social Science, 4(7), 265-272.

Falana, O. E, (2018). Exchange Rate and Real Sector Performance in Nigeria (1961-2015). Unpublished P.hD Thesis, Department of Banking and Finance, Faculty of Social and Management Sciences, Adekunle Ajasin University, AkungbaAkoko, Ondo State, Nigeria.

Fapetu, O., & Oloyede, J. A. (2014), Foreign exchange management and the Nigerian economic growth (1960-2012), European Journal of Business and Innovation Research ,2(2), 19 -31.

Fleming, J. M. (1962). Domestic financial policies under fixed and floating exchange rates. IMF Staff Papers, 9, 369–337.

Reprinted in Richard N. Cooper (Ed.) (1969). International Finance. New York: Penguin Books.

Frankel, J. A. (2003). Experience of and lessons from exchange rate regimes in emerging economies. Monetary and Financial Cooperation in East Asia. Macmillan: Asian Development Bank.

Friedman, M. (1953). The case for flexible exchange rate. Essay in Positive Economics (pp.157-205). University of Chicago Press.

Ghosh, A.R., Ostry, J. D., Gulde, A. M., & Wolf, H. C. (1997). Does the nominal exchange rate regime matter? NBER Working Paper, 5874.

Huang,H., & Malhotra, P. (2004). Exchange rate regimes and economic growth: Evidence from developing Asian and advanced European economies. IMF Working paper series, 1- 32.

Ibadin, L.A., Moni, O. M, & Eikhomun, D. E. (2014). Real sector, gross fixed capital formation and the Nigerian Stock market. European Journal of Business and Management, 6(33), 157-168.

International Monetary Fund. (2003). Exchange arrangements and foreign exchange markets: developments and issues. World Economic and Financial Surveys. Washington, D.C..

International Monetary Fund. (2017, April). Regional economic outlook: Sub-Saharan Africa restarting the growth engine. Washington D.C..

Jhingan, M.L. (2003). Money, banking, international trade and public finance. Delhi: New A.S. Offset Press.

Kandil, M., and Mirzaie, I. A. (2002). Exchange rate fluctuations and disaggregated economic activity in the US: Theory and evidence. Journal of International Money and Finance, 21, 1–31.

Kandil, M., & Mirzaie, I. A. (2005). The Effects of Exchange Rate Fluctuations on Output and: and prices: Evidence from Developing Countries. Journal of Developing Areas, 38, 189–219.

Kanamori, T., & Zhao, Z. (2006). The Renminbi exchange rate revaluation: Theory, practice and lessons from Japan. Asian Development Bank Institute, Policy Paper 9.

Kelbore, Z.G. (2014). Trade openness, structural transformation, and poverty reduction: empirical evidence from Africa. Post-doctoral research fellow bureau of Market Research College of Economic and Management Sciences University of South Africa.

Klein, M., & Shambaugh, J. (2010). Exchange rate regimes in the modern era. Cambridge: MIT Press.

Kowalski, P., Paczynski, W., & Rawdanowicz, L. (2003). Exchange rate regime and real sector: Asectoral analysis of CEE Countries. Post-Communist Economies, 15 (4), 533-555.

Levy-Yeyati, E., & Sturzenegger, F. (2003). To float or to fix: Evidence on the impact of exchange rate regimes on growth. The American Economic Review, 93(4), 1173-1193.

Lizondo, J. S., & Montiel, P. J. (1989). Contractionary Devaluation in Developing Countries: An Analytical Overview. IMF (Washington) Staff Papers , 36(1), 182-227.

McKinnon, R. (1963). Optimal currency areas. American Economic Review, 53, 717- 724.

Mordi, M.C. (2006). Challenges of exchange rate volatility in economic management in Nigeria. CBNBullion ,30(3), 17-25.

Mordi, C. N., Adebiyi, M. A., Adenuga, A. O., Adebayo, O. M., Abeng, M. O., Akpan, I. N., & Evbuomwan, O. O. (2013).

Modeling the real sector of the Nigerian economy. CBN, Research Department, 1-59.

Mundell, R. A. (1960). The monetary dynamics of international adjustment under fixed and flexible exchange rates. Quarterly Journal of Economics, 74, 227-257.

Mundell, R.A. (1963). Capital mobility and stabilization policy under fixed and flexible exchange rates. Canadian Journal of Economic and Political Science, 29(4), 475-485. Reprinted in Mundell, Robert A. (1968). International Economics. New York: Macmillan.

National Bureau of Statistics (2014). Measuring Better: Presentation of Preliminary Results of The Rebased Nominal Gross Domestic Product (GDP) Estimates for Nigeria 2010 to 2013 delivered by The Statistician-General of the Federation & Chief Executive Officer, NBS, Dr.Yemi Kale,Abuja. 6 April 2014.

Ngerebo-a., T. A., & Ibe., R. C. (2013). Exchange rate and macroeconomic performance in Nigeria: A causal post structural adjustment programme investigation. Global Journal of Management and BusinessResearch Finance, 13(7).

Obi, K. O., Oniore, J. O., & Nnadi, K. U. (2016). The impact of exchange rate regimes on economic growth in Nigeria. Journal of Economics and Sustainable Development, 7(12), 115-127.

Odusola, A. (2006). Economics of exchange rate management. CBN Bullion, 30(2), 38-44.

Olajide, V. C. (2016). Real Sector Performance and Exchange Rate Dynamics in Nigeria.

Olorunfemi, S., & Fatukasi, A. A. (2011). An Appraisal of foreign exchange resources generation and Management. Journal of Social Sciences,7 (4), 579-585.

Oloyede, J. A. (2002). Principles of international finance. Lagos: Forthright Educational Publishers.

Omojimite, B. U. &Akpokodje, G. (2010). A comparative analysis of the effect of exchange rate volatility on exports in the CFA and non-CFA countries of Africa. Journal of Social Sciences, 24 (1), 23-31

Opaluwa, D., Umeh, J. C., & Abu A. A. (2010). The effect of exchange rate fluctuations on the Nigerian manufacturing sector. African Journal of Business Management, 4(14), 2994-2998.

Oyejide, T. A. (1985). Exchange rate policy for Nigeria: Some options and their consequences. Proceedings of the one day Workshop of Economic Society of Nigeria, July 4, 1985.

Peseran, M. H., & Perasan, B. (1997). Working with Microfit 4.0:Interactive Econometrics Analysis. Oxford University Press.

Pesaran, M. H., & Smith, R. J. (1998). Structural analysis of co-integration VARS. Journal of Economic Surveys, 12, 471-505.

Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approach to the analysis of level relationship. Journal of Applied Econometrics, 6, 289-326.

Rogoff, R., Husain, A., Mody, A., Brooks, R., & Oomes, N. (2003). Evolution and performance of exchange rate regimes. IMF Working Paper (WP/03/243).

Rose, A. K. (2011). Exchange rate regimes in the modern era: fixed, foating and flaky. Journal of Economic Literature, 49(3), 652-672.

Sanusi, L. S. (2010). Growth prospects for the Nigerian economy. Convocation Lecture delivered at the Igbinedion University Eighth Convocation Ceremony, Okada, Edo State, and November 26, 2010.

Sanusi, L. S. (2011). Growing Nigeria’s real sector for employment and economic development: The role of Central Bank of Nigeria. Being a paper delivered at the inaugural memorial lecture in honour of late Professor OkefieUzoaga at the University of Nigeria, Nsukka, Enugu State on July 2, 2011.

Tille, C, (2002). How valuable is exchange rate flexibility? Optimal monetary policy under sectoral shocks, Federal Reserve Bank of New York Staff Reports, 147.

Umar, A. & Soliu, H. (2009). The foreign exchange rates in Nigeria; Convergence or divergence. 14th Annual Conference of the African Econometric Societyon Econometric Modelling in Africa, 9th -11th July, 2009.




DOI: http://dx.doi.org/10.3968/10964

Refbacks

  • There are currently no refbacks.


Copyright (c) 2019 Canadian Social Science

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.


Share us to:   


Reminder

  • How to do online submission to another Journal?
  • If you have already registered in Journal A, then how can you submit another article to Journal B? It takes two steps to make it happen:

1. Register yourself in Journal B as an Author

  • Find the journal you want to submit to in CATEGORIES, click on “VIEW JOURNAL”, “Online Submissions”, “GO TO LOGIN” and “Edit My Profile”. Check “Author” on the “Edit Profile” page, then “Save”.

2. Submission

  • Go to “User Home”, and click on “Author” under the name of Journal B. You may start a New Submission by clicking on “CLICK HERE”.
  • We only use three mailboxes as follows to deal with issues about paper acceptance, payment and submission of electronic versions of our journals to databases: caooc@hotmail.com; css@cscanada.net; css@cscanada.org

 Articles published in Canadian Social Science are licensed under Creative Commons Attribution 4.0 (CC-BY).

 CANADIAN SOCIAL SCIENCE Editorial Office 

Address1020 Bouvier Street, Suite 400, Quebec City, Quebec, G2K 0K9, Canada.

Website: Http://www.cscanada.net Http://www.cscanada.org 
E-mailcss@cscanada.net, css@cscanada.org

Copyright © Canadian Academy of Oriental and Occidental Culture