IIARD International Institute of Academic Research and Development

IIARD INTERNATIONAL JOURNAL OF BANKING AND FINANCE RESEARCH (IJBFR )

E-ISSN 2695-1886
P-ISSN 2672-4979
VOL. 3 NO. 2 2017

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The Effect of Fluctuations of Exchange Rates on Nigeria’s Balance of Payment

Mbanasor, Christian Okechukwu (Ph.D) and Obioma, James

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Abstract

The effect of fluctuations of exchange rates on Nigeria’s balance of payment is the focus of this research. The objective of study is consistent with the problem under study. The review of literature looked at conceptual, theoretical and empirical basis of previous work done in related areas mostly capturing the responses by Nigeria’s monetary authorities towards guiding exchange rates to affect balance of payment over the years. The methodology employed in this study was the ordinary regression model in line with the works of Ofurum and Torbira (2011). The design of the research is the ex-post facto, the motive being to determine the cause-effect relationship between the independent and dependent variables with a view to establishing a casual link between them. The secondary data used in the analysis include data on import rate, export rate and the GDP. The methodology’s justification is premised on known volatility test models proving that exchange rate volatility impacts on macro-economic variables such as those performed by Ofurum and Torbira. The two-stage least square was used to test the hypothesis. According to the Gauss-Markov theorem the least squares estimators are assumed unbiased in linear estimation and possessing minimum variance. The relationship between a dependent variable and two or more regressors (independent variables) is examined by the model. It is considered appropriate for research such as this where the impact of exchange rate on macro-economic variables is studied. And in testing the causal relationship between the exchange rate and major macro-economic variable granger causality was used. The findings indicated that exchange rate fluctuations has positive and non-significant impact on Nigeria’a balance of payment(coefficient of EXR = 0.082, t-value = 0.304). This indicates that a one percent increase in balance of payment position in Nigeria is due to 0.08 percent increases in exchange rate fluctuations. The probabi

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