International Journal of Research and Innovation in Social Science (IJRISS) | Volume VI, Issue VII, July 2022 | ISSN 2454–6186
Assessing Exchange Rate Volatility and Economic Growth in Nigeria: A Garch Model Approach
Okosu, Napoleon David
Department of Economics, Veritas University, Abuja FCT- Nigeria
Abstract: This study has examined the impact of exchange rate volatility on economic growth in Nigeria from the year 1981 to the year 2020. The study adopted secondary data (i.e. time series) obtained from World Bank National Account data and Central Bank of Nigeria Annual Statistical Bulletins, subjecting them to statistical analysis for relevant inferences to be made. Five variables were used in the study which were Growth rate of Gross Domestic Product (GRGDP), Exchange Rate Volatility (EXRV), Balance of Trade (BOT), Oil Price (OILP) and Inflation (INF) Rate. The variables were subjected to unit root test and they were stationary at different order of I(0) and I(1). Since the Variables were not all stationary at level but a mixed series, the ARDL bound test of cointegration was used to test for cointegration among them. Using the bound test, the variables were found to be cointegrated at 1% level of significance. The ARDL result indicated that; Exchange rate volatility has a significant impact on economic growth, with the impact being negative. In addition, other economic variables such as inflation has a negative and significant impact on economic growth while oil price have a positive and significant impact on economic growth. On the other hand, BOT has a positive effect on growth but the impact was significant at the 10 percent level. From the findings the study recommended that foreign exchange market should be well monitored with a view to ensuring that only ventures that would engender value added production in the real sector and export-oriented businesses should have more access. This will help to increase the value of the naira against major world currencies.
I.INTRODUCTION
The exchange rate of the Nigerian Naira to the United States Dollar in recent years has experience huge fluctuation and the attendant effect has been enormous in the economy. Also, amidst the variation in exchange rate the real GDP which is a good proxy for economic growth has shrink in recent time causing the nation to experience two recessions within a short interval of 2017 and 2020.
The effects of exchange rate volatility on growth, is seen as a comprehensive measure of the benefits and costs of exchange rate stabilization that can be x-rayed through international trade (imports/exports), foreign direct investment, credit flow, and asymmetric shock, some of the most important transmission channels from exchange rate volatility on growth (Gadanecz and Mehrotra, 2015). Previous research on the impact of exchange rate stability on growth such as Ismaila (2018); Umaru, Niyi, and Osagie (2019) has tended to find weak evidence in favour of a positive impact of exchange rate stability on growth.