IMPACT OF EXCHANGE RATE ON ECONOMIC GROWTH IN NIGERIA (1981-2016): AN ARDL APPROACH

The study assessed empirically the impact of exchange rate on economic growth in Nigeria from 1981 to 2016. Data on GDP, Exchange rate, foreign direct investment (FDI), inflation rate, imports, exports, trade openness, final consumption expenditure (FCE), interest rate, and government expenditure were obtained from the different issues of the CBN Statistical Bulletin. Data series were assessed for stationarity with the aid of the ADF test. Bound test was conducted and the model was estimated within the ARDL framework supported by the relevant postestimation diagnostic tests. The bound test showed that there was long run relationship among the study variables. Model estimation revealed that import, lag of trade openness, FDI, lag of exchange rate, interest rate and inflation significantly affected the growth of the economy in the short run. In the long run, economic growth was affected by trade openness, FDI, exchange rate, government expenditure and interest rate. It was concluded that the present year exchange rate did not affect economic growth in the short run but its one year lag did, while exchange rate had negative effect on the growth of the Nigerian economy in the long run. To achieve growth in the economy, effective exchange rate management system along side expansionary fiscal policy and encouragement of importation of capital goods are recommended.