The Impact of Exchange Rate Misalignments on Agricultural Export in Nigeria

Abstract

Real effective exchange rate (REER) misalignment leads to severe disruptions which negatively affects the tradeable sector and other sectors of an economy. However, the extent to which it affects agricultural export performance has not gained much attention. This paper, therefore, examined the effect of maintaining the REER at its equilibrium value on agricultural export (cotton and palm kernel) in Nigeria and how its misalignment also affects agricultural export using the VECM and ARDL model. The effects of trade openness, terms of trade, capital inflows and government expenditure on agricultural export were also investigated. The study employed a behavioural equilibrium exchange rate approach to determine the equilibrium path and estimate the REER misalignment. The results revealed that misalignment in the REER reduced the volume of agricultural exports thereby worsened its performance. While keeping the REER at equilibrium had a positive influence on the volume of agricultural export in Nigeria. Furthermore, the macroeconomic variables such as trade openness positively affected agricultural export while the term of trade had a negative effect on agricultural export. Thus, more trade openness, an improved term of trade and maintaining the REER at equilibrium value will improve the agricultural export performance in Nigeria.