Impact of Exchange Rate Volatility on Trade Balance in Nigeria

Oyegun  Gbenga; Ofie, Francis  Ejime

doi:10.31149/ijefsd.v4i8.3443

Oyegun Gbenga Wellspring University, Benin City, Edo State
Ofie, Francis Ejime Central Bank of Nigeria, Benin City, Edo State

DOI: https://doi.org/10.31149/ijefsd.v4i8.3443

Keywords: Exchange Rate, Volatility, Trade Balance, Import, Export

Abstract

This study explored the relationship between exchange rate volatility and trade balance in Nigeria using annual time series from 1981 to 2020. The study focused on the impact of exchange rate volatility on Nigeria’s balance of trade account, imports, and exports. Exchange rate volatility was measured using GARCH (1,1) variance series derived from the real effective exchange series. Other explanatory variables considered were inflation rate and interest rate, while balance of trade account, imports, and exports were the dependent variables. Error correction models were adopted for the analyses and estimated by the ordinary least squares technique. The findings revealed that exchange rate volatility positively impacts on the balance of trade account, imports and exports in Nigeria with about a very close magnitude. In addition, inflation was very responsive in reducing trade account balance, imports and exports. Although it reduced exports more than it reduced imports. On the other hand, interest rate did not impact on balance of trade and imports but showed a positive impact on exports in Nigeria.

References

1. Aliyu, G. (2010). Impact of Foreign Exchange Volatility on Import: A Case of Nigeria Foreign Exchange Market. Proceedings of the 7th International Conference on Innovation and Management.
2. Aloba, O.M. and Abogan, O.P. (2013). Exchange Rate Volatility in Nigeria; Evidence from a Parametric Measure. Australian Journal of Business and Management Research (AJBMR), 3(5), 12-17.
3. Aristotelous, K. (2017) Exchange-rate Volatility, Exchange-rate Regime, and Trade Volume: Evidence from the UK-US Export Function, Econometrica.
4. Brodsky, J. M. (1984). Domestic Financial Policies under Fixed and Floating Exchange Rates. IMF Staff Papers 9, no. 3: 369–379.
5. Danladi, J. D. Akomolafe, K. J. Babalola, O. and Akpan, E. A (2015). Exchange Rate Volatility and International Trade In Nigeria. Research Journal of Finance and Accounting, 6(18)
6. Danmola, R.A. (2013). The Impact of Exchange Rate Volatility on the Macroeconomic Variables in Nigeria. European Scientific Journal. 9(7)
7. Dickson, O.O. & Ukavwe, A., (2013). Exchange Rate Volatility Effect on Trade Variations in Nigeria, Mediterranean Journal of Social Sciences, 4(6).
8. Elif, N. & Kunst, R, (2012). The Effects of Exchange Rate Volatility on International Trade Flows: Evidence from Panel Data Analysis and Fuzzy Approach. Zbornik Radova Ekonomskog Fakulteta u Rijeci / Proceedings of Rijeka School of Economics 30(1):9-31
9. Gujarati, D. (2012), Basic Econometrics, Tata McGraw-Hill Publishing Limited New Delhi.
10. Hill, P. A (2008). Exchange Rate, Prices and External Adjustment in the United States and Japan. International Finance Discussion Paper No. 456. Board of Governors of Federal Reserve System
11. International Financial Statistics (2015). International Monetary FUND (IMF). Washington, D.C.: IMF.
12. Joseph, G, (2011). The Impact of Exchange Rate on Economic Growth in Nigeria (1980 - 2012). Australian Journal of Business and Management Research, 9 – 18
13. Kerlinger, F. N. (1970) Foundation of Behavioural Research. New York: Holt, Rinehart and Winston Limited
14. Nicita. A. (2013) UNCTAD, Geneva. Exchange rates, international trade and trade policies. Policy issues in international trade and commodities study series No. 56
15. Okechukwu, I.A., Mbadike, N.S., Geoffrey, U. & Ozurumba, B.A. (2019). Effects of Exchange Rate, Interest Rate, and Inflation on Stock Market Returns Volatility in Nigeria. International Journal of Management Science and Business Administration, 5(6), 38-47
16. Onwumere, J. U. J. (2015), Business and Economic Research Methods, Lagos: Don-Vinton
17. Osuegbu J.O, (2019). The Impact of Exchange Rate Fluctuation on the Nigerian Economic Growth: An Empirical Investigation. International Journal of Academic Research in Business and Social Sciences, 4(8)
18. Serenis, D., Tsounis, N., (2014), Exchange Rate Volatility and Aggregate Exports: Evidence from Two Small Countries. International Journal of Computational Economics and Econometrics, 5(1):71-107.
19. Udeh V.U (2016), Globalization, Exchange rate Volatility and foreign trade performance in Nigeria: An empirical analysis, a mimeograph submitted to the University of Nigeria, Nsukka.