Econometric Analysis of Exchange Rate and Export Performance in a Developing Economy

Abstract

The study investigated the causal relationship between currency exchange rate (EXR) and export growth (EXP) in Nigeria, Africa’s largest economy and most populous nation. The study used econometric tools for the analysis based on statutory annual data over the period 1970s-2014. It is shown that EXR and EXP are not co-integrated and, hence, a long-run equilibrium relationship may not exist between them. The Granger causality test shows significant absence of short-run nexus between EXR and EXP, but there is a unidirectional causality running from EXR to EXP with no feedback. It is inferred that while the EXR may have significant impact on EXP, EXP in a single commodity (crude oil)-dependent economy like Nigeria, may have very little impact on EXR. Thus, the long-held thesis that if you devalue the currency, you will export more is not empirically supported in the Nigerian case. The implications of these findings for sustainable fiscal policy development and some suggestions for future research are discussed.