Effect Of Foreign Exchange Variables On Balance Of Payments In Nigeria

ABSTRACT

This study examines the effect of foreign exchange variables on balance of payment in Nigeria using time series data from 1981-2014. The data from the study were sourced from various issues of the central bank of Nigeria’s statistical bulletin. The data was subjected to Augmented Dickey Fuller (ADF) unit root test to ascertain the time series properties. Descriptive statistics was used to access the socioeconomic characteristics of the variables. Akaike information criterion was equally utilized to obtain the optimal lag length of the variables. Serial correlation test was employed to verify the possibility of autocorrelation in the regression model using Q-statistic as well as ARDL regression analysis approach. The study found that:  exchange rate had positives and significant impact on balance of payments external reserves had positive and significant impact on balance of payments with total exports having positive and significant impact on balance of payments while import data was negative and insignificantly influencing balance of payments in Nigeria. The study recommends that: domestic production should be improved to encourage to encourage export transactions in order to keep balance of payments deficit in check, foreign exchange policies should further strengthen the naira value through increase in export of locally manufactured products in order to build up external reserves, economic activities should be increased by encouraging domestic productivity that breed export transactions to off-set the level of importation into the economy; there should be trade liberalization mostly among countries of interest in order to boost the local economy  through exchange of goods and services.