EXCHANGE RATE AND ECONOMIC GROWTH IN NIGERIA

Abstract

This study examined the impact of exchange rate on economic growth in Nigeria within the period of 1996 to 2016 using the Autoregressive Distributed Lag (ARDL) model. This study found the existence of long-run relationship between exchange rate and economic growth and also found a unidirectional causality which runs from real exchange rate to economic growth. Furthermore, the ARDL results revealed a direct (positive) impact of real exchange rate on economic growth in Nigeria which is statistically significant at 1% level of significant. This study concluded that exchange rate devaluation, though will lead to loss of value for the Nigeria currency naira, but has the ability to lead expansion in output level through increased demand for Nigeria’s exports which will become cheaper through depreciation of the exchange rate. This study therefore recommended that the government should pursue an exchange rate regime where exchange rate is determined by market forces of demand and supply.