Exchange rate and its effects on the living conditions of Nigerians

This research looked at the effect of exchange rate on the living conditions of Nigerians using both primary and secondary data. The focus was to identify the overall impact of exchange rate on living conditions in Nigeria and also establish its direct impact on the average Nigerian. Structural break was identified to have occurred in 2006 with a short and long-run relationship established. In the short run, exchange rate, inflation, unemployment and the lending rate all have negative effects on living conditions with only inflation insignificant before structural break. Only inflation also has a significant effect post structural break. In the long run, exchange rate depreciation positively affects living standards pre and post structural break but only significant pre-structural break. The results showed that the effect of exchange rate on living conditions is not necessarily negative but depends on the country's economic realities in terms of its productive capacity. Inflation, unemployment and lending rates maintained the negative effect on living standards of Nigerians with only inflation insignificant. Post-structural break, higher unemployment rate increases the standard of living of Nigerians likely due to increased informal sector participation. The study evidently shows that the standard of living of Nigerians have been in severe decline since the structural break. The primary data confirm that exchange rate depreciation negatively affects average Nigerians, confirming the short-run result. The exchange rate affects living conditions through an increase in the prices of commodities, causing a reduction in purchasing power. In the long run, exchange rate will contribute to a better standard of living if the country can improve its productive capacity.