THE IMPACT OF EXCHANGE RATE VOLATILITY ON ECONOMIC GROWTH IN NIGERIA

This study examines the impact of exchange rate volatility on economic growth in Nigeria using time series data from 1970-2020. Multiple regression and cointegration methods are employed to analyze the data. The objectives of this study are; to examine the causal relationship between exchange rate volatility and economic growth in Nigeria from 1970-2020; to investigate the impact of exchange rate volatility on trade balance in Nigeria from 1970-2020. Being a time series data to avoid spurious regression results, the first step is to test for the stationarity of the data using the Philip Peron and Augmented Dickey Fuller Unit root test. All the
variables were stationary at 1(1). The pair-wise Granger causality test was used to investigate the causal relationship between exchange rate volatility and economic growth. Major findings from the study are as follows: that there is no causal relationship between exchange rate volatility and economic growth in Nigeria. Exchange rate volatility (EXCH) recorded both positive and negative impact on economic growth (GDPR) although; the rate of negative impacts outweighs that of the positive impact. Trade balance (BOP) has an insignificant positive effect on gross domestic product (GDPR). Based on these findings, the study recommends that the Nigerian Government should pay serious attention to factors that stimulate exchange rate fluctuations like high inflation and budget deficit and encourage an export led economy, avoid systematic currency devaluations in order to maintain
exchange rate volatility at a rate that allows adjustment of the balance of payments amongst other recommendations.