Accounting Project Topics

The Impact of Exchange Rate Fluctuation on the Nigerian Economic Growth

The Impact of Exchange Rate Fluctuation on the Nigerian Economic Growth

The Impact of Exchange Rate Fluctuation on the Nigerian Economic Growth

Chapter One

Objective of the Study

In a highly import dependent economy like Nigeria, the continuous naira exchange rate has become one of the most widely controversial issues in the country today. This is not surprising as this topic has had a lot of impact on the Gross Domestic Product (GDP). The GDP here however is an indicator of economic growth in an economy. Specifically, the objectives of this study include:

  1. To determine the extent to which interest rate has influenced the rate of domestic growth in the economy.
  2. To examine the nature of the relationship between the unstable exchange rate fluctuations and economic growth in Nigeria, and to determine the management of interest rate and exchange rate in Nigeria.
  3. To investigate the relationship between the exchange rate, inflation rate, interest rate and trade openness of the Nigerian economy to her Gross Domestic Product (GDP).
  4. To determine if the continuous fluctuation of exchange rate of naira have an impact on the standard of living of the citizen, export and to what extent.




Exchange rate enhances a wider range of export rate and societal prosperity and help national industries to develop improve productivity and create new jobs (Lages and Montgomery, 2014). Presently, a large number of Nigerians are joining the capital market of importing goods and online transactions using cryptocurrency, bitcoin etc.  Initially, exporting provides an opportunity for firms to become less dependent on the domestic market. By reaching new customers overseas, the firm may also explore economies of scale and achieve lower production costs while producing more efficiently. By export it means goods produced domestically and sold abroad. When goods are sold abroad, payment is made in the currency of the buyer; hence, there is a need for exchange of currency at a given rate (Stephen, 2017). Exchange rate is the price of units of currency of one country expressed in terms of units of currency of another. In other words, it represents the number of units of the currency of one country that can be exchanged for another. The Exchange rate is also seen as a measure of the value of the national currency against other countries, which reflects the economic situation of the country compared to other countries (Obadan, 1994). The exchange rate is therefore potentially an extremely sensitive price changes that occur rapidly, automatically and continuously (Stephen, 2017). It is therefore important to note that exchange rates of currencies are never constant for an indefinite period; it fluctuates in response to demand for and supply of foreign exchange in the foreign exchange market. In order to understand the effect of exchange rate changes on export trade, it is important to analyze how exchange rate fluctuations affect export performance. In other word, in an export-led growth country, a major concern will be to make its export sector open to external shocks, especially in regards to exchange rates volatility. With the Nigerian economy in a state of exchange rate fluctuation, especially with the fluctuations in the currency of her major trading partners, question arises as to whether trade can continue to be a reliable source of economic growth for Nigeria. This major problem which this study is designed to solve is whether the exchange rate has any bearing on export growth. The present contribution is expected to rekindle research interest in this direction for purpose of achieving greater stability and sustainability in foreign exchange management in Nigeria through internationally competitive productivity in Nigeria. It is hypothesized that there is no causal relationship between exchange rate (EXR) and export growth (EXP) in Nigeria Most of the empirical studies (e.g Abule et al, 2012, Yutaka, 2013) on this issue were conducted in the case of developed countries. Only few studies have been carried out to investigate the relationship for developing countries which might be due to the lack of sufficient time series data. Many of the previous works on the exchange rate have been on different sectors of the economy, except for the export sector. In the light of the widespread effects of the recent global financial crisis on exchange rate and other macroeconomic developments, this study investigates the implications of exchange rate fluctuations on economic growth and other critical determining factors of exchange rates.





The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to examine the effects of exchange rate fluctuation on economic growth in Nigeria.


Data were collected from two main sources namely:

  1. Primary source and
  2. Secondary source

Primary source:

These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.

Secondary source:

These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.




Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey.  This presentation will be based on the data collected from the Nigeria stock Exchange publications. The result of this exercise will be summarized in tabular forms for easy references and analysis.





It is important to ascertain that the objective of this study was to examine the impacts of exchange rate fluctuation on the Nigeria economic growth.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges associate with the unstable nature of exchange rate on the Nigerian economy.


This research study examined the impact of exchange rate on economic growth from 1998 to 2015 using the first quarter. The result revealed that exchange rate has positive impact. This is affirms previous studies that developing countries are relatively better off in the choice of flexible exchange rate regimes. The result also indicated that interest rate and rate of inflation have negative impact on economic growth but not significant. From the empirical reviewed work, some authors argued that exchange rate is positively related to economic growth, while some authors argued that it is negatively related. However, from empirical analysis of the study, it was found that exchange rate is positively related to output growth. Certain policy implications arise from the findings. Principal among them is that exchange rate depreciation affects both output and money supply in Nigeria. It demonstrates the need for a monetary policy framework that complements the existing exchange rate policy. On the whole, this research has provided empirical estimates of the relation between exchange rate and economic growth in Nigeria. The results ascertain that there is a statistically significant direct relationship between the two variables. The vector auto regression results also demonstrate that real exchange rate and real income are significantly cointegrated. In the long run, the exchange rate and income may drift apart, but in a short run their relationship is strong and direct


The main objective of this study was to examine the impacts of exchange rate on economic growth of Nigeria. By applying the OLS approach we found that real exchange rate (RER) positively affects the economic growth of the country. The research further attempts to investigate the effect of RER on economic growth using the Vector Auto Regression (VAR) and Granger Causality Test. Based on VAR results at least one coefficient of the lags of RER is statistically significant meaning that there exists a long run relationship between real exchange rate (RER) and GDP.

The findings of causality test indicate that GDP does not seem to induce RER but, RER seems to induce GDP. Regarding the current account balance, trade openness and monetary aggregate M2, these variables do not cause the exchange rate and likewise, exchange rate does not cause current account, trade openness and M2, respectively. It is evident that the nature of their relationship is influenced by other factors, such as dollarization and structural shocks.

According to the empirical results, we conclude that the current regime i.e. fix regime of the exchange rate ensures macroeconomic stability of the country. Having in mean the dollarization characteristics exchange rate pass through effect and credibility. Introducing a float exchange regime is likely to induce more costs than benefits for the economy of the country. Nigeria has high level of dollarization and with high foreign denominated debt may not be able to afford sharp devaluation because that will increase the burden debt and other negative consequences in the economy.


  1. The study recommended that government should encourage the export promotion strategies in order to maintain a surplus balance of trade and also conducive environment, adequate security, effective fiscal and monetary, as well as infrastructural facilities should be provided so that foreign investors will be attracted to invest in Nigeria.
  2. There should be an increase in the exchange rate of Naira in order to enhance economic growth. The Nigerian government should endeavour to stabilize the exchange rate of Naira in order to achieve economic growth because of the current high fluctuation of naira exchange value.
  3. Investors should consider fluctuations in other macroeconomic variables rather than fluctuation in the exchange rate market to guide their decisions in order to ascertain where to direct investments for profit maximization.
  4. The Nigerian economy need be diversified to enhance economic growth.


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