Investigating the Impact of Exchange Rate Volatility on Export Trade in Nigeria

Abstract

The aim of this study is to examine how fluctuations in exchange rate impact export trade in Nigeria over the period 1980 to 2020. To achieve this objective, the volatility of exchange rate is generated from the Generalized Autoregressive Conditional Heteroskedasticty (GARCH, 1,1) model. The study assumes that export trade can be predicted by fundamental variables such as exchange rate volatility, oil rents, inflation, and foreign direct investment. The empirical findings based on the Autoregressive Distributed Lag (ARDL) model revealed that in the long run, exchange rate volatility, oil rent, and foreign direct investment have a negative relationship with export trade but the effect of inflation on export trade is positive. However, only the effect of FDI is statistically significant in the long run. Also, in the short run, exchange rate volatility, inflation, and FDI have a negative and significant relationship with export trade but the effect of oil price on export trade is positive and statistically significant. The deviation from the long-term equilibrium is adjusted with the speed of about 33.93% every year in Nigeria. Based on these findings, the study suggests the need for macroeconomic policies to target price and exchange rate stability in order to promote export trade in the country.