Abstract
We examine the short-run and long-run oligopoly - exchange rate nexus, with a focus on access to forex in Nigeria, using the Autoregressive Distributed Lag (ARDL) model; controlling for other macroeconomic fundamentals (inflation rate, interest rate, oil price, and net trade balance). Oligopoly is defined using the Herfindahl-Hirshman Index (HHI) on the sectoral utilization of foreign exchange in Nigeria. While the concentration in forex allocation to firms and industries became oligopolistic between 2014 and 2015, the Naira/USD exchange rate also recorded a jump from N164.8/US$ to N195.5/US$; indicating possible association. Oligopoly in forex allocation in Nigeria caused a weakly (strongly) significant appreciation (depreciation) in the exchange rate in the short-run (long-run). Imperatively, the exchange rate benefits of forex allocation to selected big firms are not sustainable. Net trade balance and oil price also reduced the pressure on Nigeria's forex market and stimulated potential Naira appreciation, but only in the short run; suggesting the need to diversify the economy from reliance on oil-based trade and embrace a more sustainable trade path.
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