AN EMPIRICAL ANALYSIS OF CAUSATIVE EFFECT OF LINGERING NAIRA DEVALUATION ON NIGERIAN ECONOMY

Abstract

This study focused on the effect of the inflationary trend caused by persistent loss of value of Naira on the Economic growth and foreign exchange market in Nigeria. The study adopted quantitative research design. Data for this study were of secondary sources obtained from the Statistical Bulletin of Central Bank of Nigeria. Data collected were analysed using multiple regression. The result of the study revealed that inflation negatively affects the GDP. The loan cost on the other hand positively affects the GDP. Also, exchange receptiveness negatively affects the GDP. The study affirmed economic literature; highlighted the link between the exchange rate volatility and economic performance in Nigeria considering gross domestic product as an exponent of economic performance, thus the need to quantify the link between gross domestic product and exchange rate volatility emerges. The study suggests further diversification of the economy: an expansion in non-oil exports, adoption of measures to stimulate domestic production of essential household goods, and also encourage export of primary commodities in which the country has comparative advantage. A strong demand management of exchange rates through restrictive monetary and fiscal policies to ensure that growth of aggregate demand is compatible with a low and stable inflation is recommended. The study also recommended an adoption of a realistic exchange rate policy for naira best capable of restricting excessive demand for foreign exchange.