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The Impact of Exchange Rate Movements on Trade Balance in Nigeria’s Open-Economy - L’impatto delle variazioni dei tassi di cambio sulla bilancia commerciale della Nigeria

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The objective of this study is to examine the impact of exchange rate on Nigeria’s trade balance. Time series data on trade balance, external reserves, exchange rate, money supply and real GDP were used in the analysis and the data were subjected to unit root tests to determine their time series characteristics. Modern econometric procedures were used to provide empirical evidence. The error correction model results show that money supply, effective exchange rate and real GDP are negatively related to trade balance. Also external reserves is positively related to trade balance. Exchange rate movements and money supply are major factors in the determination of trade balance in Nigeria. The model has a good fit and 93 per cent of the variation in the trade balance is explained by the independent variables. Policy makers should encourage production, trade and commercial activities that will lead to sustaining a stable effective exchange rate. - Lo scopo di questo studio è esaminare l’impatto dei tassi di cambio sulla bilancia commerciale della Nigeria. Sono stati usati nell’analisi dati time series sulla bilancia commerciale, le riserve esterne, i tassi di cambio, la liquidità e il PIL lordo e i dati sono stati sottoposti a test di radice unitaria per determinare le loro caratteristiche. Avanzate procedure econometriche sono state applicate per fornire evidenze empiriche. I risultati dei modelli di correzione dell’errore mostrano che la liquidità, il tasso di cambio effettivo e il PIL reale sono negativamente correlati al saldo della bilancia commerciale. Inoltre le riserve esterne sono positivamente correlate alla bilancia commerciale. Le variazioni dei tassi di cambio e la liquidità sono i fattori maggiormente determinanti nella bilancia commerciale nigeriana. Il modello è robusto e il 93 percento delle variazioni nella bilancia commerciale sono spiegate dalle variabili indipendenti. La politica economica dovrebbe incoraggiare la produzione, il commercio internazionale e le attività commerciali che portano a sostenere un tasso di cambio reale stabile.

Suggested Citation

  • Obudah, Bodiseowei C. & Tombofa, Steve S., 2014. "The Impact of Exchange Rate Movements on Trade Balance in Nigeria’s Open-Economy - L’impatto delle variazioni dei tassi di cambio sulla bilancia commerciale della Nigeria," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 67(1), pages 111-125.
    • Handle: RePEc:ris:ecoint:0713
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    References listed on IDEAS

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    1. Festus 0. Egwaikhide & Louis N. Chete & Gabriel 0. Falokun, 1994. "Exchange rate depreciation, budget deficit and inflation the Nigerian experience," Working Papers 26, African Economic Research Consortium, Research Department.
    2. Miles, Marc A, 1979. "The Effects of Devaluation on the Trade Balance and the Balance of Payments: Some New Results," Journal of Political Economy, University of Chicago Press, vol. 87(3), pages 600-620, June.
    3. Adubi, A.A. & Okunmadewa, F., 1999. "Price, Exchange Rate Volatility and Nigeria's Agricultural Trade Flows: a Dynamic Analysis," Papers 87, African Economic Research Consortium.
    4. Carmen M. Reinhart, 1995. "Devaluation, Relative Prices, and International Trade: Evidence from Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 42(2), pages 290-312, June.
    5. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
    6. Egwaikhide, F.O., 1999. "Determinants of Imports in Nigeria: a Dynamic Specification," Papers 91, African Economic Research Consortium.
    7. Gylfason, Thorvaldur & Risager, Ole, 1984. "Does devaluation improve the current account?," European Economic Review, Elsevier, vol. 25(1), pages 37-64, June.
    8. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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    More about this item

    Keywords

    Exchange Rate; Trade Balance; Real Growth; Money Supply;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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