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EFFECT OF CURRENCY DEVALUATION ON ECONOMIC GROWTH IN NIGERIA: NEW EVIDENCE FROM DYNAMIC OLS

Journal: ILORIN JOURNAL OF BUSINESS AND SOCIAL SCIENCES (IJBSS) (Vol.24, No. 1)

Publication Date:

Authors : ;

Page : 1-19

Keywords : Currency Devaluation; Naira-Dollar Exchange Rate; Dynamic OLS; Economic growth;

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Abstract

The extant literature is characterized with diverse views on policy impact prediction in respect of currency devaluation and economic growth. We have the optimists who view the policy impact prediction as positive due to its expansionary effect. We also have the pessimists who view it as negative due to its contractionary effect. There is ample evidence of this ambiguous relationship between currency devaluation and economic growth. The conclusion for different economies therefore is subject to empirical investigation. This study used dynamic OLS to examine the effects of currency devaluation as well as its associated returns on economic growth with special consideration to export and import of goods and services and inflation rate in Nigeria. Annual time series data covering the period 1981 to 2020 were fetched from Central Bank of Nigeria Statistical Bulletin augmented with latest version of WDIs of World Bank Group. The result shows that currency devaluation as well as its associated returns has a contractionary effect on output in support of the pessimist school of thought. Both inflation and export of goods and services have positively significant effect while import of goods and services has negatively significant effect on all the estimated models. The three control variables jointly produced the most desirable models with the highest adjusted R-square of about (0.998) in each case and with smallest variance of about (0.007, 0.003) respectively. The study, therefore, is concluded by recommending a substantial reduction in the naira-dollar exchange rate as well as import of goods and services while all measures should be taken in raising the volume of export of goods and services to accelerate economic growth in this socalled oil-rich nation.

Last modified: 2023-01-11 20:49:13