IMPACT OF EXCHANGE RATE FLUCTUATIONS ON BALANCE OF PAYMENTS IN NIGERIA
Abstract
This study investigates the impact of exchange rate fluctuations on balance of payments in Nigeria (1981-2024). The broad objective of the study is to examine the impact of exchange rate fluctuations on balance of payments in Nigeria. The study adopts the ex-post facto research design and the Error Correction Model (ECM) and Generalized Autoregressive Conditional Heteroskedasticity (GARCH) estimation techniques in analyzing the annual secondary time series data on balance of payments (BOP, dependent variable), exchange rate (EXR), interest rate (INTR), and trade openness (OPN) ranging from 1981-2024, for a period of 44 years. The data were collected from the Central Bank of Nigeria (CBN) statistical bulletin, 2024 editions. The regression result of the study indicate that trade openness (OPN) exerts a significant positive impact on balance of payments (BOP) in Nigeria during the period under review; while exchange rate (EXR), interest rate (IR) and inflation rate (INF) exert insignificant negative impact on balance of payments (BOP) in Nigeria over the period covered in the study. The GARCH result which is positive indicates that volatility/fluctuation is present and persistent. The findings further show that no significant causality relationship existing between no significant causality relationship exists between exchange rate (EXR), interest rate (IR), inflation rate (INF), trade openness (OPN) and balance of payments (BOP) in Nigeria whatsoever, over the period under consideration. The findings also reveal that 12.97% of the variation in balance of payments (BOP) is being orchestrated or occasioned by the variations in exchange rate (EXR), interest rate (IR), inflation rate (INF) and trade openness (OPN). Based on the findings, the study recommends, among others, that the governments at all level strive towards fostering lasting peace in their respective geographical locations which remains a germane condition for the attraction of foreign investors into the economy. Thus, the provision of enabling economic environments devoid of insurgency, bloodshed, extra-judicial killings are pertinent.
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