REAL EFFECTIVE EXCHANGE RATE AND IMPORT OF GOODS AND SERVICES LINKAGE IN NIGERIA: AN IMPACT ANALYSIS

Abstract

This paper assessed the influence of real effective exchange rate on import of goods and services in Nigeria over the period, 1986-2020. The Error correction model estimation was applied in estimating the multiple regression model. The findings showed that the real effective exchange rate is negative and statistically significant effect on the exports of goods and services in Nigeria. Expectedly, the convergence coefficient or error correction term (ECT) is negatively signed and significant, which suggests that last-period’s deviation from a long-run equilibrium influences its short-run dynamics as is being corrected at a speed revealed by the parameter estimate. Thus, the speed of adjustment (or error correction term) shows that deviation from equilibrium relationship is corrected at the speed of 56% on annual basis. We recommend that we recommend that if the Nigeria wants to focus on import, the currencies should be devalued/depreciated because they are relatively elastic to changes in real exchange rate. Keywords: Exchange Rate, Error Correction Model, Imports, Goods, Nigeria.