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Real exchange rate misalignment and economic growth in Nigeria

Author

Listed:
  • Ali, Abdulkadir I.
  • Ajibola, Isaiah O.
  • Omotosho, Babatunde S.
  • Adetoba, Olutope O.
  • Adeleke, Abiola O.

Abstract

This paper investigates the impact of Naira real exchange rate misalignment on Nigeria's economic growth using quarterly data spanning the period 2000-2014. We derive estimates of Real Exchange Rate Misalignment (RERMIS) by computing deviations of the actual real exchange rate from a sustainable equilibrium path that is determined using the Behavioural Equilibrium Exchange Rate (BEER) approach of Edwards (1989). Our modelling approach accounts for the possible effects of endogeneity and structural breaks in the estimated relationships. In terms of the extent of RERMIS, results show that the Naira was on the average overvalued by 0.17 per cent during the study period. The Gregory and Hansen procedure provides evidence of co-integration between output and its determinants with a structural break in 2003Q2. Furthermore, we found empirical support for a negative impact of RERMIS on economic growth. In view of these findings, the study recommends the continued use of market-based exchange rate arrangements as a way of ensuring that the Naira real exchange rate follows its path of sustainable equilibrium. This would complement other government policies aimed at promoting economic growth in the country.

Suggested Citation

  • Ali, Abdulkadir I. & Ajibola, Isaiah O. & Omotosho, Babatunde S. & Adetoba, Olutope O. & Adeleke, Abiola O., 2015. "Real exchange rate misalignment and economic growth in Nigeria," MPRA Paper 98526, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:98526
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    References listed on IDEAS

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    3. Omotosho, Babatunde S., 2012. "Endogenous Structural Breaks and Real Exchange Rate Determination in Nigeria since Interbank Foreign Exchange Market (IFEM)," MPRA Paper 98306, University Library of Munich, Germany.
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    Citations

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    Cited by:

    1. Omotosho, Babatunde S., 2015. "Is Real Exchange Rate Misalignment a Leading Indicator of Currency Crises in Nigeria?," MPRA Paper 98353, University Library of Munich, Germany.
    2. Zainab Jehan & Iffat Irshad, 2020. "Exchange Rate Misalignment and Economic Growth inPakistan: The Role of Financial Development," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 59(1), pages 81-99.
    3. Nyoni, Thabani, 2018. "Modeling and Forecasting Naira / USD Exchange Rate In Nigeria: a Box - Jenkins ARIMA approach," MPRA Paper 88622, University Library of Munich, Germany, revised 19 Aug 2018.

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    More about this item

    Keywords

    Real exchange rate misalignment; economic growth; error correction model; co-integration; structural break;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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