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Responsiveness of Trade Flows to Changes in Exchange rate and Relative prices: Evidence from Nigeria

Author

Listed:
  • M. Abimbola Oyinlola

    (Department of Economics, University of Ibadan, Ibadan, Nigeria)

  • Oluwatosin Adeniyi

    (Department of Economics, University of Ibadan, Ibadan, Nigeria)

  • Olusegun Omisakin

    (Department of Economics and Business Studies, Redeemer's University, Nigeria; and Center for Econometrics and Allied Research (CEAR), University of Ibadan, Nigeria)

Abstract

This paper examines the long-run and short-run impacts of exchange rate and price changes on trade flows in Nigeria using exports and imports functions. The bounds testing (ARDL) approach to cointegration is applied on a quarterly data from 1980Q1 to 2007Q4. The results indicate that in both the short-run and long-run Nigeria’s trade flows are chiefly influenced by income- both domestic and foreign-, relative prices, nominal effective exchange rates and the stock of external reserves. The results also reveal that in the long-run, devaluation is more effective than relative prices in altering imports demand at both baseline and augmented models. The reverse is, however, the case for exports demand. Furthermore, the sum of the estimated price elasticities of export and import demand in Nigeria exceeds unity indicating that the Marshall-Lerner (ML) condition holds thus implying that a devalued naira might hold considerable promise as the panacea to rising trade deficits.

Suggested Citation

  • M. Abimbola Oyinlola & Oluwatosin Adeniyi & Olusegun Omisakin, 2010. "Responsiveness of Trade Flows to Changes in Exchange rate and Relative prices: Evidence from Nigeria," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 3(2), pages 123-141, December.
    • Handle: RePEc:tei:journl:v:3:y:2010:i:2:p:123-141
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    References listed on IDEAS

    as
    1. Mohsen Bahmani-Oskooee & Orhan Kara, 2008. "Relative Responsiveness Of Trade Flows To A Change In Prices And Exchange Rate In Developing Countries," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 33(1), pages 147-163, June.
    2. Mohsen Bahmani-Oskooee & Taggert Brooks, 1999. "Bilateral J-Curve between U.S. and her trading partners," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 135(1), pages 156-165, March.
    3. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    4. Swarnjit Arora & Mohsen Bahmani-Oskooee & Gour Goswami, 2003. "Bilateral J-curve between India and her trading partners," Applied Economics, Taylor & Francis Journals, vol. 35(9), pages 1037-1041.
    5. Mohsen Bahmani-Oskooee & Orhan Kara, 2003. "Relative Responsiveness of Trade Flows to a Change in Prices and Exchange Rate," International Review of Applied Economics, Taylor & Francis Journals, vol. 17(3), pages 293-308.
    6. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    7. Bahmani-Oskooee, Mohsen & Niroomand, Farhang, 1998. "Long-run price elasticities and the Marshall-Lerner condition revisited," Economics Letters, Elsevier, vol. 61(1), pages 101-109, October.
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    Citations

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    Cited by:

    1. Cephas Naanwaab & Osei-Agyeman Yeboah, 2014. "A partial equilibrium analysis of NAFTA's impact on U.S. bilateral trade," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 7(1), pages 89-112, April.
    2. Tony Nchokoe Matlasedi, 2017. "The influence of the real effective exchange rate and relative prices on South Africa’s import demand function: An ARDL approach," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1419778-141, January.

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    More about this item

    Keywords

    Trade flows; Exchange rate; Relative prices; Autoregressive distributed lag;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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