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TOPIC : IMPACT OF REAL EXCHANGE RATE ON NIGERIA'S EXPORT (1970 – 2010)
BACKGROUND OF THE STUDY
Exchange rate is an important economy metric as it reflects
underlying strength and competitiveness with world economies.
Whether fixed or floating, exchange rate affects macroeconomic
variables such as import, export, output, etc. Chong
and Tan, (2008) empirical analysis revealed that the
exchange rate is responsible for changes in macroeconomic
fundamentals for the developing economies. Exchange
rate fluctuations influence domestic prices through
their effects on aggregate supply and demand (Engel,
2002). In general, when a currency depreciates it will
result in higher import prices if the country is an
international price taker, while lower import prices
result from appreciation. The potentially higher cost
of imported inputs associated with an exchange rate
depreciation increases marginal costs and leads to higher
prices of domestically produced goods (Kandil, 2004).
Also, import-competing firms might increase prices in
response to foreign competitor price increases to improve
Available evidence generally suggests that most developing
countries registered a persistent decline in their foreign
exchange earnings from the early 1980s. This is attributed
largely to the collapse of commodity prices in the world
market. Combined with this are two principal factors.
First, is reduced foreign lending and second is the
increased cost of external borrowing.
This triggered a series of developments in most developing
countries. It is a statement of fact that external trade
dominates government revenue in these countries. Both
exports and imports of developing countries are subject
to periodic fluctuations in the world market, and revenue
from this source tends to fluctuate accordingly. Thus,
it was not surprising that the collapse of commodity
export prices in the early 1980s engendered fiscal crises
in most African countries, as reflected in their huge
budget deficits. In part, this led to the adoption of
economic reform programmes.
is little systematic research, examining whether exchange
rates affect Nigerian export. This study fills the void
by examining whether real exchange rate influence the
export volume of Nigeria.
Exports are a key part of international trade and the
proceeds from exported goods in particular is vital
to economic growth. These proceeds directly contribute
to investment, which in turn constitutes the motor of
economic expansion. This may have prompted some authors
to be preoccupied with the determinants of exports especially
in developing countries.
This study examines the determinants and major components
of aggregate exports and its major components in Nigeria.
A dynamic specification of export model shall be explored
with special focus on the effect of real exchange rate.
The study focuses on the following objectives:
(i) To investigate empirically, the effect of real exchange
rate on Nigerian export;
(ii) To examine the exchange rate policies of Nigeria
(iii) To examine the trend of the Nigerian export sector;
(iv) To highlight and discuss the various policies and
programmes used in promoting export in Nigeria.
(v) To suggest ways of making the Nigerian exports more
exchange rate responsive.
The research questions examined in this study are as
1. What impact does the real exchange rate has on Nigerian
2. What exchange rate policies have been adopted in
3. What is the trend of the Nigeria’s export over
4. What efforts has the government made to promote Nigeria’s
From the research questions stated above, the core hypothesis
to be investigated empirically are stated below:
H0 : That the real exchange rate does not affect Nigerian
H1 : That the real exchange rate affect Nigerian export.
METHOD OF DATA COLLECTION
Secondary data shall be the basis for this study. The
relevant data to be used would be sourced from the Central
Bank of Nigeria’s statistical reports, annual
reports and statement of accounts for the years under
review. The data to be collected include: exchange rate,
total export and implicit price deflator.
TECHNIQUE OF ANALYSIS
The empirical investigation of the effect of real exchange
rate on Nigerian export would be conducted using the
Ordinary Least Square (OLS) method. The hypothesis testing
would be conducted at 5% level of significance. The
method would be applied with the use of Statistical
package for social science (SPSS).
exp = b0 + b1 rexr
Where exp - Total export value
rexr - Real exchange rate
a0 and a1 - Parameters
OF THE STUDY
The significance of this study are as follows:
(i) It would present an empirical prove of the relationship
between the real exchange rate and Nigeria export.
(ii) It would provide a yardstick to assess the exchange
rate policies of Nigerian government.
(iii) The study would also contribute to knowledge by
suggesting how exports could be exchange rate responsive.
OF THE STUDY
The scope of this study covers Nigeria’s exchange
rate policies over the years to date. The general overview
of the profile of Nigeria’s export over the years
is also discussed. The empirical investigation of the
relationship between exchange rate and Nigeria’s
export are restricted to the period between 1970 and
2010 due to data non-availability.
A major limitation of this study is that it focuses
only on one determinant of export in the empirical investigate
and that is the exchange rate. Several other factors
were excluded. This is due to the focus of the study.
OF THE STUDY
Justice would be done to this study in chapters. The
first chapter shall present the background of the subject
matter justifying the need for the study. Chapter two
will discuss a review of related literature concerning
exchange rate and exportation. The research methodology,
which would comprise model specification, sources of
data, etc. shall be outlined in chapter three. Chapter
four shall focus the presented and analysis of regression
results. Other relevant data would also be discussed.
Chapter five shall highlight the summary of the findings,
present a conclusion and make recommendations.
Chong, L. L. and Tan, H. B. (2008) “Exchange Rate
Risk and Macroeconomic Fundamentals: Evidence from Four
Neighbouring Southeast Asian Economies”. International
Research Journal of Finance and Economics, Issue 16,
Engel, C. (2002) “Expenditure Switching and Exchange
Policy”. NBER Working Paper, No. 9016.
Kandil, M. (2004) “Exchange rate fluctuations
and economic activity in Developing countries: theory
and evidence”. Journal of Economic Development,
Vol. 29, No. 1, pp. 85-108.
Regression Data and Results are included
rate, real exchange rate, exchange risk, exchange rate
fluctuations, international trade, export,