Naira Exchange Rate Research Articles

Testing the Robustness of Public Spending Determinants on Public Spending Decisions in Nigeria

ABSTRACTThis study tests the robustness of variables used in determining public spending in Nigeria from 1970 to 2016. This is achieved through the simultaneous use of a symmetric and asymmetric ARDL and Toda–Yamamoto causality procedures. The empirical findings reveal sufficient evidence of asymmetry in the behaviour of policy variables such as oil price, inflation rate, and the exchange rate. Hence, the conclusion that asymmetry significantly exists in key variables, used by Nigerian fiscal authorities for spending decision-making. Also, the asymmetric Toda–Yamamoto causality result reveals that increase in oil price, depreciation in the Naira value, and government revenue are the key determinants of public spending. Hence, the revenue-spend hypothesis. It is recommended that the re-investment of surplus proceeds from oil receipts should be given much priority. Specifically, the re-investment of such revenues into sectors such as manufacturing, construction, and information technology, will speed-up the diversification process of the revenue base; and sufficiently reduce the negative effects a decline in the oil price, and the Naira exchange rate will have on public spending. The policy of inflation targeting by the monetary authority should be sustained to check unwarranted inflationary trajectory; which may have an adverse effect on public spending value.

The Effect of Exchange Rates on Nigerians Currency and Projecting the Naira for the Year 2025

Exchange rate instability is a good pointer for monitoring Nigerian currency and it has always been a key economic indicator to sustain Nigeria and her economic growth. Linear regression is a great statistical tool used to find, predict and also to assess whether there is an undeviating correlation and dependences between numerical variables. This study investigates the instabilities in exchange rate of five countries’ currencies which includes European Euro, United Kingdom Pounds, Saudi Arabian Riyal, Switzerland swissf and the Nigerian Naira with key interest on Naira. This was done to ascertain whether changes in other countries will affect the exchange rate of Naira. The stable and fluctuating exchange rate of these countries were examined and used to plot a digital signal structure. Data used for this study is the daily exchange rate of five countries’ currencies (Euro, Pounds, Riyal, Swissf and Naira) from 12th October, 2005 to 2nd October, 2018 obtained from https://www.cbn.gov.ng/rates/exchratebycurrency.asp. We applied linear regression tool on our source data and also applied the equation for prediction on our coefficients so we were able to predict the exchange for Naira come year 2025 which gave us N311.076. The rate of accuracy (R2) and the coefficient of our model were used in predicting Nigerians exchange rate for year 2025. The 99% rate of accuracy of our model reveals that our model is perfect and the impression from this study is that the exchange rate of other countries affects Naira.

An analysis of determinants of deposit money banks lending in Nigeria, 1990-2014

Deposit money banks thrives on financial intermediation. Funds lending constitutes the largest income-earning asset in the portfolio of most deposit money banks generally. Hence, banks deploy huge resources to estimate, monitor and manage the quality of their loans and advances. This study aims at investigating the determinants of lending of deposit money banks in Nigeria. Secondary data was used to justify the relationship between commercial banks and lending in Nigeria. More so, the model used was estimated using Nigeria deposit money banks loans and advances (LOA) as dependent variable, and determinants (independent variables) such as volume of deposit (Vd), Interest rate (Ir), liquidity ratio (Lr) and annual average exchange rate (ExR) for the period of 1990 - 2014 (25 years). The techniques used in this investigation were : Augmented Dickey-fuller (ADF) test), multiple regression analysis and Granger causality test. The estimated result revealed that there is a positive relationship between loans and advances and volume of deposit and annual average exchange rate of Naira to dollar, while interest rate and liquidity ratio has a negative relation: all conform to the approri expectation. The study then suggests that commercial banks should focus on mobilizing more deposits as this will enhance their lending performance, and should formulate critical, realistic and functional plans that will ensure its profitability, liquidity and solvency. The government should ensure it uses monetary policy such that will create enabling environment for the deposit money banks to generate more deposits so as to channel it to investors for investment

Volatility of stock market returns and the naira exchange rate

In the wake of steadily declining oil prices, the naira-dollar (Nigeria-US) exchange rate came under severe pressure, leading to extreme volatility in the foreign exchange rate. This study seeks to explore volatility spillovers between stock market returns and the exchange rate due to speculation of foreign investors in the stock market. We employed a multivariate GARCH model (VARMA-AGARCH model) to model the transmission mechanism of mean return, return spillover and shock spillover between the stock market and the foreign exchange market, using their return series. Results indicate the presence of a transmission mechanism between these markets. Shock spillovers however showed a stronger uni-directional transmission of shocks from the stock market to the foreign exchange market without breakpoints. When breakpoints were considered, a bi-directional spillover pattern was observed across both markets. We thus bring into perspective the role played by foreign portfolio investors in determining the exchange rate of a small, open, emerging market economy. Short term capital flows into emerging market securities may thus distort the long-run equilibrium of the foreign exchange market.

International Financial Transactions and Corporate Performance in a Dynamic Financial Market (Evidence from Nigerian Financial Sector)

The primary aim of this study is to examine the relations between international financial transactions and corporate performance in a dynamic financial market within the banking industries using Annual Time Series Data of the Variables. The annual time series data were sourced majorly from central bank of Nigeria statistical bulletin. This study covers 33 years period between 1980-2013. Econometric techniques of ordinary least square (OLS) Augmented were employed in the analysis. Return on investment was used as a measure of corporate performance. The international financial transactions measure includes (growth of cross-border credits to total deposit money banks assets, growth of non oil export to deposit money bank asset, cross border banking claims to total deposit money bank assets and exchange rate) as independent variables. The results indicate that corporate performance in a financial market which is measured by return on Investment has a positive and significant relationship on growth of cross boarder credit to total deposit money banks assets, growth of non-oil export to deposit money banks assets, cross boarder banking claims to total deposit money bank assets and ratio of exchange rate of Naira to Dollar. Consequently, it is recommended that there is every need for the deposit money banks management to strengthen their international financial transactions management scope as the indicators studied largely exhibit strong influence on the performance of deposit money banks.

Growth and Oil Price Fluctuation in Nigeria: A Variance Decomposition Evidence

This study examines the impact of oil price shocks on economic growth rate in Nigeria using the impulse response functions and forecast error variance decomposition on quarterly data from 2000 to 2016. This study finds that fluctuations in oil prices cause swings in GDP growth rate in Nigeria. The fluctuation in oil prices also depreciates Naira exchange rate. The country should branch out its revenue sources to shield the dangle effect of the fluctuation in prices of oil.

Determinants of Exchange Rate Sensitivity on the Nigerian Manufacturing Sector

This paper examines the exchange rate sensitivity and its determinants with special focus on the Nigerian Manufacturing Sector (1980-2014). The motivation for this study is driven by the exposure of Nigeria’s exchange rate and economy excessively to external shocks as revealed by the effects of the recent global economic crisis on Nigeria. In doing this, Error Correction Model (ECM), Augmented Dickey-Fuller (ADF) testand the Johansen co-integration technique were adopted to examine the impact of exchange rate fluctuations on Nigeria’s manufacturing sector. The variables employed include: Average Official Exchange Rate of Naira vis-a-vis US Dollar and Nominal Effective Exchange Rate Indices, interest rate, inflation rate, Balance of Payment (BOP), real Gross Domestic Product (GDP), manufacturing index of ordinary shares listed on the Nigerian Stock Exchange, and average manufacturing capacity utilisation rates. The result of the empirical analyses showed that the Nigerian manufacturing sector is not sensitive to exchange rate fluctuations in the long-run. Also, it was found that interest rate and Gross Domestic Product are the main determinants of exchange rates in Nigeria but interest rateis insignificant in the determination of exchange rate in the country. Some of the recommendations made in this study are that: the monetary authorities should maintain stability of the exchange rates through proper management so as to encourage local production, the monetary authorities must endeavour to force the interest rate down and continue to advocate for priority lending to the manufacturing firms. Equally, the government must continue to discourage importation in order to maintain exchange rate stability.

Modelling the impacts of remittances on real exchange rate of Nigeria's Naira

This study evaluated the impact of remittances on the real exchange rate of Nigeria's Naira. The results of the cointegration analysis indicated evidence of a long run relationship among the variables whereas the normalised cointegrating coefficients of the variables showed that all the variables significantly affect RER. We found that remittances received, measure of openness of the economy, nominal exchange rate, terms of trade, growth of RGDP positively impacted on RER in the long run. On the contrary, ratio of government consumption to GDP and price level negatively affected RER in the long run. The results for the estimated short run coefficients based on parsimonious error correction model revealed that REMIT had negative and significant relationship with RER in the first and third periods lag. The Breush-Godfrey serial correlation LM test indicated that the model of this study is not dogged by autocorrelation of any order.

The Nexus between Exchange Rate Variation and Economic Growth in Nigeria

This research paper is centered on the nexus between exchange rate variation and economic growth in Nigeria with emphasis to the purchasing power of the average Nigerians and the level of international transaction. Exchange rate fluctuations have been of serious concern to the monetary authorities, policy makers and business tycoons of developing countries, Nigeria inclusive because of the relevance of exchange rate in international trade, investment and in determining the level of output growth of a country. Therefore it is vital to examine the degree at which exchange rate fluctuates which had called for a lot of attention in Nigeria. This study examined the Impact of Exchange Rate Fluctuation on the Nigerian Economic Growth using an annual data of forty-three (43) years covering the period (1970-2013). The standard deviation method was employed to capture and estimate the fluctuation inherent in the model as regards the research’s objective. The study employed econometric techniques such as; Multiple Regression Model, Augmented Dickey Fuller (ADF) test, Johansen Co-integration test and the Error Correction Model (ECM). Evidence from this study exhibited that there exists a positive but insignificant impact of exchange rate fluctuation on Nigerian economic growth in both the long run and short run. This result is attributed to the ability of the Nigerian government to effectively regulate some other important macroeconomic variables which can infuriate exchange rate which has thereby helped curtail the effects of exchange rate fluctuation during the study period. This is an indication that monetary authorities might have initiated policies that helped absorb the influence of exchange rate fluctuation on economic growth in Nigeria. Therefore, the government should encourage domestic production of goods and services for Naira exchange rate appreciation and generally to promote economic growth in Nigeria- moreover to maintain and sustain exchange rate and economic stability. In the same vein, the government should pay more attention to other more volatile macroeconomic variables like oil price and inflation rate in Nigeria. Research paper Keywords: Exchange Rate, Exchange rate fluctuation, Economic growth, Purchasing power, Macroeconomic variables Reference to this paper should be made as follows: Amassoma, D. (2017). “The Nexus between Exchange Rate Variation and Economic Growth in Nigeria”, Journal of Entrepreneurship, Business and Economics, Vol. 5, No. 1, pp. 1–40.

Agriculture in Place of Crude Oil Production as an Alternative Income Earner for Nigeria: A Cointegration Analysis Approach

Aims: To examine the contribution of agriculture as an alternative to crude oil production on the Nigerian economy using cassava production as proxy. Study Design : Johansen - Juselius co - integration proc edure and error correction models are adopted. Place and Duration of Study: The data used in this study are from secondary sources. Data on gross domestic product per capital (GDPPC), and naira exchange rate (ER) are obtained from NGA_Country Meta Data_Agr ic 2013, while that on cassava production (CAS) are obtained from FAO Statistics Division 2013. Data covered 1980 and 2010. Methodology: The study uses Johansen - Juselius co - integration procedure to examine a possible long run equilibrium among GDPPC, CAS, and ER. Unit root, Granger - causality, and cointegration tests were conducted. Results: All variables are integrated of order one. Causality test indicates that both CAS and LEXH Granger cause GDPPC. The causality is one - way. Both trace and max - eigenvalue t ests indicate 1 cointegrating equation with P=0.0296 and 0.0255 respectively. Johansen - Juselius co - integration procedure identified a long run equilibrium among gross domestic product per capital, cassava

The determinants of real exchange rate volatility in Nigeria

The naira exchange rate depreciation and volatility is among the vast macroeconomic maladjustments which have unfolded in the Nigerian economy in the recent past. This paper therefore, investigates the determinants of real exchange rate volatility in Nigeria from 1981 through 2008. Having obtained the volatility of exchange rate through the GARCH (1,1) techniques, the ECM was used to examine the various determinants of exchange rate volatility in Nigeria, while the co-integration analysis reveals the presence of a long term equilibrium relationship between REXRVOL and its various determinants. Our empirical analysis further shows that openness of the economy, government expenditures, interest rate movements as well as the lagged exchange rate are among the major significant variables that influence REXRVOL during this period. This study recommends that the central monetary authority should institute policies that will minimize the magnitude of exchange rate volatility while the federal government exercises control of viable macroeconomic variables which have direct influence on exchange rate fluctuation. Keywords: Exchange Rate, Volatility, GARCH, ECM, Co integration

IMPACT OF GLOBALISATION ON TEXTILE INDUSTRIES: A CASE STUDY OF SOME NIGERIAN INDUSTRIES IN KANO METROPOLIS

Using panel data set for 3 selected textile industries in Kano State for the period 1985 – 2005 this study utilized Fixed Effects Regression Model (FEM) and Random Effects Regression Model (REM) to investigate on globalization and textile output in Kano. Results from this research reveal that electricity consumption has significant positive influence on textile output. Another finding of the research is that globalization and exchange rate of naira against United State dollar have negative but significant influence on textile output. The study therefore recommends that Nigerian government should take a second look at her membership of the World Trade Organisation (W.T.O) and selectively engage those policies that will promote her national interest, most especially the imperative need to protect the textile firms. As for the exchange rate, adjustment should be made in the level of the domestic currency based on the interactions of market forces that will facilitate appropriate pricing of the foreign exchange and enhance domestic products which enhance their competitiveness in the export market. Moreover, stable and reliable power supply is necessary to generate optimum production at lower cost so as to enhance utilization of idle resources, expand factor incomes, improve competitiveness and expand overall textile output.

Investigating the Trend and Sources of Economic Efficiency in the Sugar Industry in Nigeria

This study analyzed economic efficiency indices in the sugar industry in the period 1970 to 2010 in Nigeria. Secondary data were obtained from the sugar firms, Food and Agricultural Organization (FAO), Central Bank of Nigeria (CBN) and National Bureau of Statistics (NBS) as well as the federal Ministry of Finance. Stochastic Cobb-Douglas cost function for the sugar industry was estimated from which indices of economic efficiency were obtained. Trend in the estimated economic efficiency indices showed time invariant fluctuations across the study period with an average index of 41.80% and excess cost efficiency of 58.20%. Multiple-regression of various forms based on the ordinary least squares technique was used to determine factors that influence the economic efficiency in the industry. Empirical result revealed that economic efficiency in the sugar industry was influenced positively by the industry’s sales growth and capital-labour ratio. On the other hand, the industry’s expenditures on research and training, physical capacity utilization rates and the real exchange rate of naira for US dollar impacted negatively on the economic efficiency of the industry. It is recommended that capital intensive method of production should be adopted as a means of promoting economic efficiency of resource use in the industry. Also, effective marketing policy on the sugar industry manufactures is

Modelling Currency Crises in Nigeria: An Application of Logit Model

Currency crises inflict significant social and economic costs on economies that have suffered its occurrence. Thus, statistical models have been developed over the years to construct reliable early warning systems as part of strategies for preventing or reducing the devastating effects of such crises. To the knowledge of this study, no recent work has been done in this regard with respect to Nigeria, especially following the 2008/09 global financial crisis. Using a logit model, this paper estimates the probabilities of currency crises in Nigeria as a logistic function of selected macroeconomic variables. Particularly, it provides answer to the question of whether real exchange rate misalignment propels currency crises. The empirical investigation used quarterly data for the period 2000Q1 to 2012Q4. Model results show that the likelihood of currency crisis in Nigeria increases when the real exchange rate is misaligned; the exchange rate is volatile; oil price declines; debt/GDP ratio increases; and the current account balance to GDP ratio declines. Real exchange rate misalignment has overarching influence on the tendency for currency crash during the estimation period. The paper therefore recommends regular assessments of the value of the Naira exchange rate vis-a-vis its equilibrium level with a view to implementing appropriate policy responses to arrest or avoid prolonged and substantial misalignment. Since all the variables entered the equation in their one period lag, the estimated model constitutes a reliable early warning system to policy makers on the likelihood of impending currency crisis in the country.

The Determinants of Real Exchange Rate Volatility in Nigeria

The naira exchange rate depreciation and volatility is among the vast macroeconomic maladjustments which have unfolded in the Nigerian economy in the recent past. This paper investigates the determinants of real exchange rate volatility in Nigeria from 1981 through 2008. Having obtained the volatility of exchange rate through the GARCH (1,1) techniques, the ECM was used to examine the various determinants of exchange rate volatility in Nigeria, while the co-integration analysis reveals the presence of a long term equilibrium relationship between REXRVOL and its various determinants. Our empirical analysis further shows that openness of the economy, government expenditures, interest rate movements as well as the lagged exchange rate are among the major significant variables that influence REXRVOL during this period. This study recommends that the central monetary authority should institute policies that will minimize the magnitude of exchange rate volatility while the federal government exercises control of viable macroeconomic variables which have direct influence on exchange rate fluctuation. DOI: 10.5901/ajis.2013.2n1p459

The impact of foreign exchange fluctuation on the intermediation of banks in Nigeria (1970 – 2004)

This study empirically examined the impact of foreign exchange fluctuation on the intermediation of banks in Nigeria with a view to enabling the banking system work efficiently and effectively towards the proper valuation of the Naira. The study used data sourced mainly from Central Bank of Nigeria publications. In conducting this relationship study, sample sizes of 34 years (1970 – 2004) were collected and analyzed. The analysis empirically examined the relationship between exchange rate fluctuation and commercial banks intermediation index with using annual average exchange rate as independent variables while Commercial Banks Intermediation Index (CBII) represented the dependent variable. Using SPSS to conduct the regression and correlation analysis, the study found that there is a positive relationship between foreign exchange fluctuation and CBII, that only about 28% of the changes in CBII is accounted for by variations in foreign exchange(that is, after adjusting for sample size), since the adjusted R2 = 0.278. It also revealed that at 5% significance level, the critical T-value of 2.042 is less than the computed T-value of 3.754, hence, the rejection of Ho. The result led to the conclusion that exchange rate fluctuation has significant impact on banks’ intermediation. It was therefore, recommended that government should ensure a stable naira exchange rate through a right mix of policies and de-emphasis on cash-economy. Key words: Foreign exchange fluctuation, banks’ intermediation.

Impact of Government Agricultural Policies on Exports of Cocoa and Rubber in Nigeria

The authors investigated the impact of government agricultural policies on exports of cocoa and rubber in Nigeria using cointegration and Error Correction Model approach. The analysis was carried out on time series data collected from 1970 to 2008. The result shows that Policies like Agricultural Credit Guarantee Scheme Fund (ACGSF), Structural Adjustment Programme (SAP) and Post-Structural Adjustment Programme (PSAP) have a significant positive impact on exports of cocoa and rubber. A possible reason been that the export promotion incentives provided in the SAP and PSAP periods probably encouraged the production of these crops. Among these incentives are liberalization of agricultural exports, liberalization and devaluation of the Naira exchange rate. Similarly, the ACGSF provided incentives in the form of credit which probably encouraged the production of these crops.

An Evaluation of Price Based Determinants of Nigeria’s Real Exchange Rate

By using monthly data for the 2002-2010 period, we construct two novel indices for the real Naira exchange rate. We estimate determinants of both exchange rates by using a VEC model approach. Our estimations suggest that like most commodity exporting economies, to a great extent world oil prices, level of local currency in circulation and the level of foreign reserves held by the Central Bank can be used as good predictors of the long run equilibrium real exchange rate for Nigeria. We show that increases in the world price of oil have an appreciating effect while increases in the level of currency in circulation and in the reserves are associated with a depreciation of the Naira.

Exchange rate volatility, stock price fluctuations and the lending behaviour of banks in Nigeria

Following the recent global economic crisis, so many macroeconomic maladjustments have unfolded in the Nigerian economy. First, the naira exchange rate depreciated sharply and became more volatile than any other time in nearly a decade; the stock market indices have dived very south relative to their previous year's levels and banks, because of their exposure to foreign credit lines, the stock market by themselves and their loan customers- were feared to be on the brink of collapse. Consequently, the Central Bank of Nigeria went to no end of limits to provide liquidity for the banks with a view to forestalling the feared consequences of the crisis. The main concern of researchers and analysts has been to identify the nexus through which the international crisis passed through to the domestic economy. Was the depreciation in the naira exchange rate responsible for the stock market collapse? Or was the reverse the case? Did banks curtail lending because of the depreciation or the fluctuation in the stock indices? This study empirically answers these questions. The vector auto regression (VAR) methodology is applied, treating the data series for temporal properties unit roots and co integration. The impulse response function and the analysis of variance were used to filter the effects of the included variables on bank loans, while the Engel Granger causality confirmed the lines of causation among exchange rate volatility, equity prices and bank loans. Preliminary evidence show that exchange rate volatility and equity price fluctuations affected the behaviour of banks in Nigeria but that the effects were insignificant and that the fluctuation of the stock index caused the naira to depreciate and there was no reverse causality. Changes in bank loans also led to equity price fluctuations and again, there was no evidence of reverse causality. Key words: Exchange rate volatility, global crisis, bank lending behaviour.

Exchange rate volatility and export trade in Nigeria: an empirical investigation

This article seeks to quantitatively assess the impact of exchange rate volatility on nonoil export flows in Nigeria. Theoretically, volatility-trade link is ambiguous, although a strand of studies reported inverse link between export flow and volatility. This article employed fundamental analysis where the flow of nonoil exports from the Nigerian economy is assumed to be predicated on fundamental variables: the naira exchange rate volatility, the US dollar volatility, Nigeria's Terms of Trade (TOT) and Index of Openness (OPN). Empirical results showed the presence of unit root at level; however, the null hypothesis of nonstationarity was rejected at first difference. Cointegration results revealed that a stable long-run equilibrium relationship exists between nonoil exports and the fundamental variables. Using quarterly observations for 20 years, vector cointegration estimate revealed that the naira exchange rate volatility decreased nonoil exports by 3.65%, while the same estimate for the US dollar volatility increased export of nonoil in Nigeria by 5.2% in the year 2003. This article recommends the measures that would promote greater openness of the economy and exchange rate stability in the economy.