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Do real exchange rate changes have symmetric or asymmetric effects on trade balance in Nigeria? Evidence from Non-linear ARDL Model

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  • Onatunji Olufemi

Abstract

This paper investigates the asymmetric impact of real exchange changes on trade balance in Nigeria using quarterly data over the period 1999Q1-2017Q4. A non-linear Autoregressive Distributed Lag (NARDL) proposed by Shin et al (2014) is employed for this study. The findings show that real exchange change have asymmetric impact on Nigeria’s trade balance in both time horizons. Specifically, the positive real exchange rate is highly sensitive to trade balance than the negative real exchange rate. These findings therefore suggest that using discretionary monetary policy to offset Nigeria’s trade deficit due to large differential between import and export is not sufficient enough. Thus, policy makers should adopt policy-mix to manage the current economic climate of the country such as imposition of quotas on certain imported goods, high tariff rate on imported goods, provision of credit facilities and higher tax rate that reduce disposable income of consumer.

Suggested Citation

  • 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.
  • Handle: RePEc:rfb:journl:v:11:y:2019:i:1:p:14-23
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    References listed on IDEAS

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    1. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    2. 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.
    3. Matthieu Bussiere, 2013. "Exchange Rate Pass-through to Trade Prices: The Role of Nonlinearities and Asymmetries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 75(5), pages 731-758, October.
    4. repec:taf:rjapxx:v:10:y:2005:i:1:p:96-115 is not listed on IDEAS
    5. Wang, Chun-Hsuan & Lin, Chun-Hung A. & Yang, Chih-Hai, 2012. "Short-run and long-run effects of exchange rate change on trade balance: Evidence from China and its trading partners," Japan and the World Economy, Elsevier, vol. 24(4), pages 266-273.
    6. Kiyotaka Sato & Junko Shimizu & Nagendra Shrestha & Shajuan Zhang, 2013. "Industry-specific Real Effective Exchange Rates and Export Price Competitiveness: The Cases of Japan, China, and Korea," Asian Economic Policy Review, Japan Center for Economic Research, vol. 8(2), pages 298-321, December.
    7. Dzanan, Haris & Masih, Mansur, 2017. "Does currency depreciation necessarily result in positive trade balance ? new evidence from Norway," MPRA Paper 82103, University Library of Munich, Germany.
    8. SATO Kiyotaka & SHIMIZU Junko & Nagendra SHRESTHA & Shajuan ZHANG, 2012. "Industry-specific Real Effective Exchange Rates for Japan," Discussion papers 12044, Research Institute of Economy, Trade and Industry (RIETI).
    9. Lawrence Asekome Atsegbua, 2012. "The Nigerian Oil and Gas Industry Content Development Act 2010: an examination of its regulatory framework," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 36(4), pages 479-494, December.
    10. Mohsen Bahmani-Oskooee & Hadise Fariditavana, 2015. "Nonlinear ARDL approach, asymmetric effects and the J-curve," Journal of Economic Studies, Emerald Group Publishing, vol. 42(3), pages 519-530, August.
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