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Asymmetric cointegration between exchange rate and trade balance in Nigeria

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  • Alhaji Jibrilla Aliyu
  • Shehu Mohammed Tijjani
  • Caroline Elliott

Abstract

This paper empirically examines the long-run pass through of the official exchange rates into trade balance in Nigeria by means of threshold cointegration and asymmetric error correction modeling. The study provides evidence for non-linear cointegration between our variables of interest. The estimated asymmetric error correction models provide new evidence for slower transmission of exchange rate depreciations into the country’s trade balance, which in turn appears to offer partial support for the Dutch disease hypothesis. This finding suggests that policy-makers cannot hope to use currency devaluation to improve the trade balance. It is recommended that policy-makers focus attention on diversification of the economy away from dependence on crude oil exports into productive manufacturing and non-oil exports, which will be vital in making the economy more competitive.

Suggested Citation

  • 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.
  • Handle: RePEc:taf:oaefxx:v:3:y:2015:i:1:p:1045213
    DOI: 10.1080/23322039.2015.1045213
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    2. SOLOMON PRINCE Nathaniel, 2020. "Does Exchange Rate Have Asymmetric Impact On Trade Balance? Fresh Insights From Combined Cointegration," Studies in Busine and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 15(1), pages 259-269, April.
    3. 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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