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Impact of Real Exchange Rate on Trade Balance in Nigeria

Author

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  • Nkenchor Neville Igue
  • Toyin Segun Ogunleye

Abstract

type="main" xml:lang="en"> The study investigated whether the depreciation of exchange rate has a favourable impact on trade balance in Nigeria, based on the Marshall–Lerner (ML) condition. The Johansen method of cointegration and vector error correction methodology (VECM) was employed to investigate the existence of a long-run relationship between trade balance and the specified set of independent variables. The results confirm the satisfaction of the Marshall–Lerner condition in Nigeria, implying that depreciation of the exchange rate has a positive effect on trade balance in the long run. The study also established that a one per cent depreciation in the exchange rate would improve trade balance by 1.16 per cent. In the light of these findings, the study recommends a gradual depreciation of the exchange rate, which should be accompanied with export policy that encourages domestic production of non-oil products for exports.

Suggested Citation

  • Nkenchor Neville Igue & Toyin Segun Ogunleye, 2014. "Impact of Real Exchange Rate on Trade Balance in Nigeria," African Development Review, African Development Bank, vol. 26(2), pages 347-358, June.
  • Handle: RePEc:bla:afrdev:v:26:y:2014:i:2:p:347-358
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    Citations

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    Cited by:

    1. Onatunji Olufemi, 2019. "Do real exchange rate changes have symmetric or asymmetric effects on trade balance in Nigeria? Evidence from Non-linear ARDL Model," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 11(1), pages 14-23, June.
    2. Ogunmuyiwa Micheal Segun & Adelowokan Oluwaseyi Adedayo, 2018. "Measuring the Impact of Exchange Rate on Industrial Output in Nigeria," European Journal of Marketing and Economics, European Center for Science Education and Research, vol. 1, EJME May .
    3. Suwanhirunkul, Suwijak & Masih, Mansur, 2018. "Exchange rate and trade balance linkage: sectoral evidence from Thailand based on nonlinear ARDL," MPRA Paper 87541, University Library of Munich, Germany.
    4. Adznan, Syaima & Masih, Mansur, 2018. "Exchange rate and trade balance linkage: evidence from Malaysia based on ARDL and NARDL," MPRA Paper 91509, University Library of Munich, Germany.
    5. Alhaji Jibrilla Aliyu & Shehu Mohammed Tijjani & Caroline Elliott, 2015. "Asymmetric cointegration between exchange rate and trade balance in Nigeria," Cogent Economics & Finance, Taylor & Francis Journals, vol. 3(1), pages 1045213-104, December.
    6. Christelle Meniago & Joel Hinaunye Eita, 2017. "The effects of exchange rate changes on Sub-Saharan Africa trade," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 9(3), pages 213-230.
    7. Are, Olasubomi, 2019. "Currency Devaluation and Trade Balance Nexus: A Test of Marshall-Lerner Condition in Nigeria," BizEcons Quarterly, Strides Educational Foundation, vol. 4, pages 23-43.
    8. Perekunah Eregha & Arcade Ndoricimpa & Solomon Olakojo & Mamello Nchake & Owen Nyang'oro & Edith Togba, 2016. "Nigeria: Should the Government Float or Devalue the Naira?," African Development Review, African Development Bank, vol. 28(3), pages 247-263, September.

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