THE IMPACT OF EXCHANGE RATE VOLATILITY ON TRADE IN NIGERIA

ABSTRACT

This study examined the impact of exchange rate volatility on trade in Nigeria using the annual time series data for the period 1981-2021. The main objective of this research work is to evaluate the impact of exchange rate volatility on trade in Nigeria. Augmented Dickey- fuller(ADF) test was used to test for the stationary of the variables and they were found to be stationary at first difference. Then johansen co-integration technique was used to establish if the stationary variables are co-integrated in the long run. Further, ECM is employed to correct any form of disequilibrium in the short run. The result of stationarity and diagnostic tests reveals that the model is well specified and could be used for policy analysis. The analysis was based on data extracted from Central Bank of Nigeria (CBN) statistical bulletin and World Development Indicators (WDI). The study found the level of exchange rate has a negative and insignificant impact on imports in the short run but was found to have a positive and insignificant impact imports in the long run. Also, the study found that inflation has a positive and significant impact on imports in the short run but was found to have a negative and significant impact on imports in the short run, but was found to have a negative abd significant impact on imports in the long run. Also, the study found that gross domestic product has a positive and significant impact on imports in the short run and was found to have a positive and significant impact on imports in the long run. Also, the study found that foreign income has a negative and significant impact on imports in the short run but was found to have a negative and significant impact on imports in the long run. The study found that exchange rate has a negative and insignificant impact on exports in the short run but was found to have a positive and insignificant impact on exports in the long run. Also, the study found that money supply have a positive and significant impact on exports in the short run and was found to have a negative and insignificant impact on exports in the long run. Also, the study found that inflation have a negative abd insignificant impact on exports in the short run and was found to have a positive and insignificant impact on exports in the long run. Also, the study found that gross domestic product have a positive and significant impact on exports in the short run and was found to have a negative and significant impact on exports in the long run. Lastly, the study found that foreign income have a negative and insignificant impact on exports in the short run and was found to have a positive and significant impact on exports in the long run. The study based on its finding suggests that Nigeria should adopt a guided deregulation policy of her foreign exchange market so as to fix an appropriate rate for the exchange of local currency with key currencies of the world to enable a better international trade transactions with her trading partners in a bid to engender a stable economic growth in future.