IDEAS home Printed from https://ideas.repec.org/a/ris/ilojbs/0088.html
   My bibliography  Save this article

Effect Of Currency Devaluation On Economic Growth In Nigeria: New Evidence From Dynamic Ols

Author

Listed:
  • Dada, M. A.

    (Department of Economics, College of Management Sciences)

  • Olubiyi, E. A.

    (Department of Economics, College of Management Sciences)

  • Akinbode, S. O.

    (Department of Economics, College of Management Sciences)

  • Abalaba, B. P.

    (Department of Economics, College of Social and Management Sciences)

  • Okungbowa, O. G.

    (National Institute for Legislative and Democratic Studies)

Abstract

The extant literature is characterized with diverse views on policy impact prediction in respect of currency devaluation and economic growth. We have the optimists who view the policy impact prediction as positive due to its expansionary effect. We also have the pessimists who view it as negative due to its contractionary effect. There is ample evidence of this ambiguous relationship between currency devaluation and economic growth. The conclusion for different economies therefore is subject to empirical investigation. This study used dynamic OLS to examine the effects of currency devaluation as well as its associated returns on economic growth with special consideration to export and import of goods and services and inflation rate in Nigeria. Annual time series data covering the period 1981 to 2020 were fetched from Central Bank of Nigeria Statistical Bulletin augmented with latest version of WDIs of World Bank Group. The result shows that currency devaluation as well as its associated returns has a contractionary effect on output in support of the pessimist school of thought. Both inflation and export of goods and services have positively significant effect while import of goods and services has negatively significant effect on all the estimated models. The three control variables jointly produced the most desirable models with the highest adjusted R-square of about (0.998) in each case and with smallest variance of about (0.007, 0.003) respectively. The study, therefore, is concluded by recommending a substantial reduction in the naira-dollar exchange rate as well as import of goods and services while all measures should be taken in raising the volume of export of goods and services to accelerate economic growth in this socalled oil-rich nation.

Suggested Citation

  • Dada, M. A. & Olubiyi, E. A. & Akinbode, S. O. & Abalaba, B. P. & Okungbowa, O. G., 2022. "Effect Of Currency Devaluation On Economic Growth In Nigeria: New Evidence From Dynamic Ols," Ilorin Journal of Business and Social Sciences, Faculty of Social Sciences, University of Ilorin, vol. 24(1), pages 1-19.
    • Handle: RePEc:ris:ilojbs:0088
    as

    Download full text from publisher

    File URL: https://fssunilorinedu.org/ijbss/2022%20volume%2024%20number%201/ARTICLE%201%20vol24no1,%202022.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jinzhao Chen, 2015. "Interprovincial Competitiveness and Economic Growth: Evidence from Chinese Provincial Data (1992–2008)," Pacific Economic Review, Wiley Blackwell, vol. 20(3), pages 388-414, August.
    2. Dani Rodrik, 2008. "The Real Exchange Rate and Economic Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 365-439.
    3. Acemoglu,Daron & Robinson,James A., 2009. "Economic Origins of Dictatorship and Democracy," Cambridge Books, Cambridge University Press, number 9780521671422, Enero-Abr.
    4. Zelealem Yiheyis, 2006. "The Effects of Devaluation on Aggregate Output: Empirical Evidence from Africa," International Review of Applied Economics, Taylor & Francis Journals, vol. 20(1), pages 21-45.
    5. Jinzhao Chen, 2012. "Real Exchange Rate and Economic Growth: Evidence from Chinese Provincial Data (1992 - 2008)," PSE Working Papers halshs-00667467, HAL.
    6. Ojuolape Adebayo Mohammed & Yusuf H. Agboola & Alabi K. Moshood & Oladipupo O. Abdullah, 2020. "The Effects of Currency Devaluation on Output Growth in Developing Economies with Currency Crises," Working Papers 7, Department of Economics, University of Ilorin.
    7. Klein, Michael W. & Shambaugh, Jay C., 2012. "Exchange Rate Regimes in the Modern Era," MIT Press Books, The MIT Press, edition 1, volume 1, number 026251799x, December.
    8. Mohsen Bahmani-Oskooee & Souphala Chomsisengphet & Magda Kandil, 2002. "Are devaluations contractionary in Asia?," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 25(1), pages 69-82.
    9. Cottani, Joaquin A & Cavallo, Domingo F & Khan, M Shahbaz, 1990. "Real Exchange Rate Behavior and Economic Performance in LDCs," Economic Development and Cultural Change, University of Chicago Press, vol. 39(1), pages 61-76, October.
    10. Paresh Kumar Narayan & Seema Narayan, 2007. "Is devaluation expansionary or contractionary? Empirical evidence from Fiji," Applied Economics, Taylor & Francis Journals, vol. 39(20), pages 2589-2598.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Charnikat, Charnikat & Masih, Mansur, 2016. "Granger-causal relationship between real exchange rate and economic growth: Malaysia as a case study," MPRA Paper 108939, University Library of Munich, Germany.
    2. Misbah Nosheen & Beenish Chohan & Javed Iqbal & Mark Wohar, 2023. "Asymmetric response of domestic production to exchange rate changes: Evidence from southeast Asian countries," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 37(2), pages 54-75, November.
    3. Phouphet Kyophilavong & Muhammad Shahbaz & Thongphet Lamphayphan & Byoungki Kim & Michael C. S. Wong, 2019. "Are Devaluations Expansionary in Laos?," Global Business Review, International Management Institute, vol. 20(1), pages 72-83, February.
    4. Silvia Calò & Mariarosaria Comunale, 2019. "Real Effective Exchange Rates determinants and growth: lessons from Italian regions," CEIS Research Paper 456, Tor Vergata University, CEIS, revised 27 Mar 2019.
    5. Cécile Couharde & Carl Grekou & Valérie Mignon & Florian Morvillier, 2024. "Reconciling Contrasting Views on the Growth Effect of Currency Undervaluations," Working Papers 2024-06, CEPII research center.
    6. Ji Han & Jiabin Liu, 2018. "Urban Spatial Interaction Analysis Using Inter-City Transport Big Data: A Case Study of the Yangtze River Delta Urban Agglomeration of China," Sustainability, MDPI, vol. 10(12), pages 1-16, November.
    7. Blaise Gnimassoun, 2017. "Exchange rate misalignments and the external balance under a pegged currency system," Review of International Economics, Wiley Blackwell, vol. 25(5), pages 949-974, November.
    8. Habib, Maurizio Michael & Mileva, Elitza & Stracca, Livio, 2017. "The real exchange rate and economic growth: Revisiting the case using external instruments," Journal of International Money and Finance, Elsevier, vol. 73(PB), pages 386-398.
    9. n.a.m, Naseem & m.s, Hamizah, 2013. "Exchange Rate Misalignment and Economic Growth: Recent Evidence in Malaysia," MPRA Paper 52447, University Library of Munich, Germany.
    10. Cruz-Rodríguez, Alexis, 2015. "Crecimiento económico y desalineación del tipo de cambio real en la República Dominicana: ¿Hay alguna relación? [Economic growth and the real exchange rate misalignments in the Dominican Republic: ," MPRA Paper 70974, University Library of Munich, Germany.
    11. Marcel Schroder, 2013. "Should developing countries undervalue their currencies?," Departmental Working Papers 2013-12, The Australian National University, Arndt-Corden Department of Economics.
    12. Mohsen Bahmani-Oskooee & Augustine C. Arize, 2020. "Asymmetric response of domestic production to exchange rate changes: evidence from Africa," Economic Change and Restructuring, Springer, vol. 53(1), pages 1-24, February.
    13. Terrones, Marco E., 2020. "Do fixers perform worse than non-fixers during global recessions and recoveries?," Journal of International Money and Finance, Elsevier, vol. 104(C).
    14. Comunale, Mariarosaria, 2017. "Dutch disease, real effective exchange rate misalignments and their effect on GDP growth in EU," Journal of International Money and Finance, Elsevier, vol. 73(PB), pages 350-370.
    15. Douglas Alencar & Frederico G. Jayme Jr & Gustavo Britto, 2021. "A post-Kaleckian model with productivity growth and real exchange rate applied to selected Latin American countries," PSL Quarterly Review, Economia civile, vol. 74(297), pages 127-146.
    16. Issiaka Coulibaly, 2013. "Competitiveness and growth within the CFA franc zone: does the switch to the euro matter?," Erudite Working Paper 2013-04, Erudite.
    17. Richard Bluhm & Denis de Crombrugghe & Adam Szirmai, 0. "Do Weak Institutions Prolong Crises? On the Identification, Characteristics, and Duration of Declines during Economic Slumps," The World Bank Economic Review, World Bank, vol. 34(3), pages 810-832.
    18. Ribeiro, Rafael S.M. & McCombie, John S.L. & Lima, Gilberto Tadeu, 2020. "Does real exchange rate undervaluation really promote economic growth?," Structural Change and Economic Dynamics, Elsevier, vol. 52(C), pages 408-417.
    19. Popov, Vladimir, 2010. "Development theories and development experience: half a century journey," MPRA Paper 28111, University Library of Munich, Germany.
    20. Samba Mbaye, 2012. "Real Exchange Rate Undervaluation and Growth: Is there a Total Factor Productivity Growth Channel?," CERDI Working papers halshs-00687948, HAL.

    More about this item

    Keywords

    Currency Devaluation; Naira-Dollar Exchange Rate; Dynamic OLS; Economic growth;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:ilojbs:0088. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Daniel Akanbi (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.