IIARD International Institute of Academic Research and Development

INTERNATIONAL JOURNAL OF ECONOMICS AND FINANCIAL MANAGEMENT (IJEFM )

E-ISSN 2545-5966
P-ISSN 2695-1932
VOL. 2 NO. 3 2016

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A Study of Volatility of Exchange Rate Fluctuations on the Nigerian Economic Growth

Obianuju Edith Ndu-Okereke (Ph.D) and Rev. Timothy Nwachukwu (Ph.D)

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Abstract

The study in question is the effect of exchange rate fluctuations on the Nigerian economy. The research was conducted with secondary data from the Central Bank of Nigeria (CBN) statistical bulletin. Secondary data included Gross Domestic Product (GDP) and Demand for Foreign Exchange (DFE). In examining the impact of exchange rate volatility on economic growth macroeconomic the study adopted the ordinary regression model just like Bakare (2011) and Ofurum and Tobira (2011). The justification for the use of these models was based on the volatility of exchange rate in impacting on macro-economic variables using a 14- year period. Employing the use of vector auto regression (VARs) models on the time series data, the result reveal that supply of foreign exchange has a positive and significant relationship with output level of Gross Domestic Product while the demand for foreign exchange has a negative relationship with gross demand product. The hypotheses stated will be tested using the two-stage least square (2LS). The statistical properties of the 2LS are contained in the popular Gauss- Markov theorem which sees the least squares estimators as unbiased linear estimator, having minimum variance. The model examines the relationship between a dependent variable and two or more regressor (independent variables). This suit the research since the intention of the researchers was to examine the impact of exchanges rate on these macro-economic variables on a variable by variable basis. The Granger Causality was also employed to test the causal relationship between exchange rate and major macro-economic variables. The research findings includes exchange rate fluctuations has negative and significant impact on Nigeria’s gross domestic product (coefficient of EXR = - 4.39, t-value = 2.130). This indicates that a one percent decrease in economic growth in Nigeria is due to 4.39 percent decrease in exchange rate fluctuations. The probability value of 0.0452 < 0.05 confirms the signi

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