IIARD International Institute of Academic Research and Development

IIARD International Journal of Economics and Business Management (IJEBM )

E-ISSN 2489-0065
P-ISSN 2695-186X
VOL. 3 NO. 2 2017

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The Effect of Exchange Rate on Imports and Exports in Nigeria from January 1996 to June 2015

Oloyede Oluyemi and Essi Didi Isaac (Ph.D)

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Abstract

This study examines the effect of exchange rates on imports and exports in Nigeria using monthly data from 1996 - 2015. A three variable vector auto regression (VAR) consisting of imports, exports and exchange rates (US dollar to Naira) is considered to examine the effect of exchange rate on imports and exports in Nigeria. Augmented Dickey Fuller (ADF) test is used to test the stationarity of each of the variables. There are two lagged values of each variable. VAR lag order selection discloses that the lag of order 2 is sufficient for the model based on Schwarz information criterion (SIC). The VAR result shows that exchange rates have a positive and insignificant effect on imports while it has a negative and insignificant effect on exports at lag 1 but positive and insignificant effect at lag 2. Exports were also found to affect exchange rates negatively while imports affect exchange rates positively. The above result thus shows that exchange rate in Nigeria is not affected by the activities of imports and exports. Neither does an exchange rate affect the volume of imports and exports in Nigeria. Contrary to economic theory that a fall in the exchange rate will cause imports to fall, imports in Nigeria has been on the increase irrespective of the exchange rates. The result of the impulse response function shows that exchange rates responded positively to imports and negatively to exports. This study therefore recommend the following: Exportation in Nigeria particularly in the non-oil sector should be encouraged through entrepreneurial development. The high level of imports mainly consumer goods can be discouraged by improvement in local production so that they can be competing with the foreign goods. Only goods with high proportion of necessities e.g. raw material goods should be imported. Policy measures towards the stabilization of the exchange rates are highly recommended so that level of imports can be controlled and exports encouraged. Exports capacity should b

keywords:

Exchange rate, Imports, Exports, Vector Auto regression (VAR)

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