EXCHANGE RATE POLICY AND ECONOMIC GROWTH IN NIGERIA: 1980-2017

Abstract

The Nigerian economic growth has for long precariously
leaned on buffet currency. Consequently, it has had a
chequered drowning position on growth trajectory driven
by the vicissitudes of Naira currency. An emerging trend
suggests that in the last few years the economy was
growing without job creation and poverty reduction.
Expectedly, attention of scholars had shifted towards
stable exchange rate policy as a remedial for this
quagmire. The essence of this work has been to investigate
the effects of exchange rate policy on economic growth in
Nigeria, using time series data set from the period 1980
to 2017. The study adopted the Smooth Transition
Regression (STR) model. Variables included in the model
were Inflation rate (CPI), Interest Rate, Nominal Effective
ILIMI JOURNAL OF ARTS AND SOCIAL SCIENCES (IJASS) Volume 4 No.1, November/December, 2019.
Exchange Rate Policy and Economic Growth in Nigeria: 1980-2017
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Exchange Rate and Gross Domestic Product (GDP) given
their inter-relations with the dependent variable GDP.
Smooth Transition Regression models transition as a
continuous process dependent on the transition variable
has not been used by researchers in Nigeria. This allows
for incorporating regime switching behaviour of
monetary policy in Nigeria both when the exact time of the
regime change is not known with certainty and when there
is a short transition period of monetary policy to a new
regime policy. Therefore, using STR models in Nigeria
provide additional information on the dynamics of
variables that show their value even during the transition
period by the policy makers of monetary authority in
Nigeria. The conventional tests for the value of gamma
(which is a measure of speed and smoothness of the
transition) as 1.44 shows that the transition between two
(2) distinct regimes takes place smoothly and slowly not
rapidly. The threshold value of 1.76 percent indicates that
the negative effect of any exchange rate policy or the
NEER is felt after the threshold of 1.76 percent value
above. Findings reveals that nominal effective exchange
rate policy has a negative impact on economic growth.
That is, estimated coefficient on nominal effective
exchange rate (NEER) indicates that one unit decrease in
NEER index will result in 4.99 increases in gross domestic
product (GDP). Hence, the study recommended that the
need for maintaining external competitiveness and
promoting growth remains a delicate task for
policymakers as it involves managing an exchange rate
regime accompanied by other consistent macroeconomic
policies