EXCHANGE RATE DYNAMICS AND THE CHANGING LEVEL OF IMPORTS IN NIGERIA (1981 - 2019)

ABSTRACT

The study empirically examined the relationship between exchange rate dynamics and the changing level of import in Nigeria.GARCH AND EGARCH was first used to account for the dynamics in exchange rate. Being a time series data, to avoid spurious regression result in our model, we employed the Augmented Dickey Fuller unit root test. This was to test for stationarity. . It was found to be stationary at second difference. Then the Johansen Co-integration technique was employed to determine if the stationary variables are co-integrated in the long-run, both trace and Max-eigenvalue test indicated 1 co-integrating equations at the 5% level of significance. VECM was then carried out,the result of VECM shows that not all the explanatory variables are significant, GDP, exchange are conformed with apriori expectation. Also the coefficient of 𝑅2 was found to be 70% which  indicated  that  the  explanatory  variables  were  able  to  account  for 70%  of the  total  variations  of  the  variables. The value of Durbin-Watson statistic (DW) shows that there was no presence of auto-correlation; hence the model produced a parsimonious result.Based on the research objectives, it was discovered that relationship exists between exchange rate dynamics and the changing levels of import in Nigeria. This means that we accept the  hypothesis in the research hypothesis. It was thus recommended that,                    it is important that monetary and fiscal policies to be properly coordinated and harmonized in order to achieve macroeconomic stability. The situation where monetary policy adjusts passively to the expansionary fiscal operations of government should be avoided. And alsoExternal sector problem should be tackled simultaneously forms two angles namely: boosting supply of goods and other services to other economies and managing demand. In this regard, debt service ratio has to be looked at so that it does not become so high as to erode the stability of domestic economy. Also, frivolous imports should be cut down to free more resources for meaningful investments, also it is important that the exchange rate is not overvalued, because this will result in unsustainable balance of payments and escalating external debt stock. In contrast, the exchange rate should find its equilibrium level to make the balance of payments position viable.In conclusion, it was stated that there is a relationship between exchange rate dynamics and the changing level of import. For exchange rate dynamics to reduce in Nigeria, there is a need for the high level of importation situation in Nigeria to be addressed. This will spell a better outcome in productivity for the entire country.