The Relationship Between the Value of Naira and Nigerian Production

Abstract

The study examined the relationship between the value of naira and Nigerian production. Time series data from Central Bank of Nigeria (CBN) statistical bulletin (Various Issues) were adopted. Unit root test, co-integration test and error correction model were carried out. Johansen test, trace statistics and maximum eigen statistics shows that there is co-integrating equation in a test, which means that there is a long run relationship among the variables and we reject the null hypothesis at 5%. The error correction model result showed that the economy needs 46.7% mechanical adjustment every year to adjust back to equilibrium. Inflation and interest rates are negatively affects Nigerian production (RGDP). This implies that increase in inflation and interest rates will bring about decrease in Nigerian production (RGDP) which suggests that the slow pace of growth of Nigerian production was as a result of unfavourable inflation and interest rates. That is, a percentage increase in inflation and interest rates would result on average to about 0.06532 and 0.4811 decrease in Nigerian production (RGDP). Furthermore, naira value which was measured by exchange rate positively related to Nigerian production (RGDP). This implies that the value of naira appreciates which positively contributes to Nigerian production (RGDP). That is, increase in value of naira will bring proportional increase on Nigerian production (RGDP). Finally, a percentage increase in value of naira would result on average to about 0.2279 increases in Nigerian production (RGDP). The study recommended that Nigeria government should be more serious about its economic reforms like the national Economic Empowerment and development Strategy (NEEDS), Small and Medium Enterprises Equity investment Scheme (SMEEIS) and others in order to boost the GDP internally so as to reduce pressure on imported goods which will automatically reduce the demand for dollar. This would lead to favourable exchange rate for the country. Keywords: Economic Growth, Inflation Rate, Interest Rate, Exchange Rate and Naira Value