Impact of Exchange Rate on Foreign Trade in Nigeria

Abstract

The study assessed the impact of exchange rate on foreign trade in Nigeria from 1981 to 2022, spanning 42 years. Data were obtained from the Central Bank of Nigeria (CBN) Statistical Bulletin and the World Bank Indicator. The analysis employed the Autoregressive Distributed Lag (ARDL) method, because ARDL provides more flexible lag structure than VECM and also makes the interpretation of long-run easier. An ex post facto research design was adopted. This study filled the gap of period left by other scholars. The findings revealed that in the short run, the exchange rate (EXCR) had a negative and significant impact on trade. However, in the long run, EXCR showed a positive and significant effect on trade. The gross domestic product growth rate (GDPGR) had a negative but insignificant impact on exports in the short run, while in the long run, GDPGR had a negative and insignificant impact on trade. The inflation rate (INFL) demonstrated a positive but insignificant impact on foreign trade in both the short and long run. The study recommended in order to remedy the adverse effect of exchange rate in the short run careful measures should be put in place to avert malpractices in the foreign exchange transaction several; to enhance GDP growth rate. Government should encourage local production through tax cuts, grants, subsidies and low-interest loans. Finally, inflation could be curtailed by adopting price control mechanisms to prevent the sharp rise in goods prices, and lowering interest rates to facilitate affordable loans for business expansion and increased productivity.