The Impact of Exchange Rate Uncertainty on Coca Export Prices in Nigeria

Abstract

The paper examined the impact of exchange rate on coca export in Nigeria. The Augmented Dickey Fuller Unit root, Johansen co-integration, ordinary least square, and diagnostic tests as well as error correction mechanism were adopted to analyzed the secondary time series data, between 1980 and 2019, generated from Food and Agricultural Organization (FAO), World Bank and the Central Bank of Nigeria (CBN). The ADF unit root test results showed that none of the variables was stationary at level I (0), whereas all the variables – cocoa export, agricultural export, exchange rate trade openness and world cocoa price became stationary after first difference or order one I(1). The Johansen co-integration test of the long run relationship revealed that both trace statistics and maximum eign value had two co-integrating equations at 5% whereas the trace statistics alone had 1 co-integrating equation at 1%; implying the existence of long run relationship between coca export, agricultural export, exchange rate, trade openness and world price of cocoa. The positive sign of the error correction mechanism of 0.07 suggested that deviation from the long run equilibrium is adjusted over the following time period by 7%. The t-test showed direct relationship between cocoa export and Exchange rate cum agricultural export prices, but inverse relationship with trade openness and world cocoa price. The diagnostic test revealed non existence of heteroskedasticity and serial correlation in the error term. The paper concluded that agricultural export, exchange rate, trade openness and world price of cocoa taken together affected cocoa export in Nigeria. The study recommended free market determination of exchange rate and accessibility of farmers to facilities provided by government to increase cocoa output and hence export. DOI: 10.7176/JESD/13-13-03 Publication date: July 31 st 2022