An Empirical Analysis of the Determinants of Real Exchange Rate in Nigeria (1981-2012)

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Author	Orji, Martin Chukwuma
ISSN	2307-2466
On Pages	105-114
Volume No.	4
Issue No.	3
Issue Date	August 01, 2020
Publishing Date	August 01, 2020
Keywords	Rate, Productivity Empirical analysis, Determinants, Real exchange rate, Long run relationship, Interest differential, Oil revenue, Nigeria

Abstract

Over the past ten years, the exchange rate of Nigeria on domestic currency to other foreign currencies, especially the US dollars has been on the depreciating front. The real exchange rate has been erratic, fluctuating and highly volatile over the years. The unabated problems of high unemployment, inflation and overall economic hardships have been attributed to the unstable real exchange rate. This is what necessitated the researcher to seek and find out the determinants of real exchange rate in Nigeria. Adopting the Ballassa-Samuelson Hypothesis, the study employed the Error Correction model (ECM) technique to perform the data analysis while using time series data ranging from 1981 through 2012. Findings revealed that the interest rate differential and oil revenues are major determinants of real exchange rate in Nigeria. Productivity differential was not a determinant in influencing real exchange rate, thus Ballassa-Samuelson technique could not be confirmed. The study calls for diversifying of the Nigerian economy away from the oil sectors so as to reduce the shocks arising from the oil sector.

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