EXCHANGE RATE FLUCTUATIONS AND SUSTAINABLE DEVELOPMENT IN NIGERIA

A country’s exchange rate to other countries’ currencies, to a large extent, affect the economic, social and environmental sustainability either directly or otherwise. This is because no country survives in isolation. This study examined the effect of exchange rate fluctuations on sustainable development in Nigeria, using per capita income as a proxy for economic well-being from 1996 to 2023. Specifically, the study examined the effect of official exchange rate (OFER), real exchange rate (REXR) and inflation rate (INFL) on per capita income (PCIN) of Nigerians during the period. The research employed a combination of econometric techniques, including descriptive statistics, Pearson’s correlation, the Augmented Dickey-Fuller (ADF) unit root test, and the Autoregressive Distributed Lag (ARDL) model, to analyze the short- and long-run effects of the official exchange rate, real exchange rate, and inflation on per capita income. Additionally, the Granger causality test is used to determine the existence of causal relationships among the variables. The findings revealed that the official exchange rate significantly negatively affects per capita income in the short run (-3.9038, p = 0.0036), suggesting that fluctuations in the exchange rate led to economic instability and reduced income levels. However, this effect is not significant in the long run, indicating that the economy adjusts over time through policy interventions and market mechanisms. In contrast, the real exchange rate positively influences per capita income in both the short and long run ((32.83852, p = 0.0023), highlighting its crucial role in economic growth and competitiveness. Inflation exhibits a mixed effect on per capita income, with certain lagged values showing significant influence. Furthermore, the Granger causality test results indicate no significant causal relationship between exchange rate fluctuations and per capita income, suggesting that other structural factors, such as governance, economic diversification, and institutional quality, may play a more direct role in determining income levels. The study concluded that while exchange rate management is essential for economic stability, it must be complemented by broader policies focused on economic diversification, inflation control, and institutional reforms. The study recommends adopting a stable and competitive exchange rate policy, enhancing economic diversification, implementing effective inflation control measures, and strengthening institutional frameworks to foster long-term economic growth and sustainable development in Nigeria.