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Fluctuating Exchange Rate Regime as the Driving Force for Economic Growth in Nigeria

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  • Amara Priscilia OZOJI

    (Department of Accountancy, University of Nigeria Enugu Campus, Enugu, Nigeria.)

  • Beatrice O. EZECHUKWU

    (Department of Accountancy, Federal Polytechnic, Oko, Nigeria.)

Abstract

The recent incessant increase in economic hardship among Nigerians, has created much doubts on the effectiveness of the type of fluctuating system of exchange rate currently in operation in Nigeria, in achieving its main purpose of maintaining the exchange rate at levels in line with economic growth prospects. To clear the doubts, this study investigated the effect of exchange rate fluctuation system on economic growth in Nigeria, with focus from 2003 to 2023. The study specifically aimed at: determining the effect of fluctuating exchange rate on growth rate of real gross domestic product in Nigeria (GDPGR); and determining the nature and the direction of causality between exchange rate and economic growth in Nigeria. It employed secondary data. The real effective exchange rates prevailing during the fluctuating exchange rate regime, inflation rate and lending interest rate were used as the independent variables; and economic growth was used as the dependent variable, which was measured with the annual value of real GDP growth rate in Nigeria’s fluctuating exchange rate regime. Employing the ordinary least square regression method and Granger causality test, the study discovered among others that the fluctuating exchange rate has a significant and negative effect on GDPGR. While fluctuating exchange rate was found to has Granger cause GDPGR, and GDPGR does not Granger cause the exchange rate. It was thus concluded that the fluctuating exchange rate system, currently in operation in Nigeria (managed float), is not a bad policy option to boost Nigeria’s GDP, but needs to be strengthened by the central bank through high degree of the country’s external reserves’ management. This would aid maintenance of large amounts of foreign reserves necessary for intervening in the foreign exchange market to reduce excess exchange rate volatility and reduce sustained increase in Naira exchange rate (Naira depreciation), which in turn would stimulates Nigeria’s economic growth.

Suggested Citation

  • Amara Priscilia OZOJI & Beatrice O. EZECHUKWU, 2025. "Fluctuating Exchange Rate Regime as the Driving Force for Economic Growth in Nigeria," International Journal of Research and Scientific Innovation, International Journal of Research and Scientific Innovation (IJRSI), vol. 12(2), pages 171-181, February.
    • Handle: RePEc:bjc:journl:v:12:y:2025:i:2:p:171-181
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    References listed on IDEAS

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    1. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
    2. Lawrence Olisaemeka UFOEZE, 2018. "Effect Of Foreign Exchange Rate Fluctuations On Nigerian Economy," Annals of Spiru Haret University, Economic Series, Universitatea Spiru Haret, vol. 9(1), pages 105-122.
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