Variability of Exchange Rate Andnon-Oil Exports in Nigeria, 1986-2015

Abstract

This paper explores the link between dynamics of exchange rate and non-oil export in Nigeria using combinations of Ordinary Least Squares (OLS) and error correction mechanism (ECM). Data on each of the variables were obtained from Central Bank of Nigeria Statistical Bulletin. Prior to the estimation of the model, Augmented Dickey-Fuller (ADF) procedure was employed to examine the time series characteristics of the variables and the results show that the variables are fractionally integrated. The trace and Max-Eigen statistics of the Johansen-Juselius cointegration test demonstrate that the variables have long run relationship. The static regression result shows that exchange rate has significant positive impact on non-oil export. A percentage increase in exchange rate or depreciation of the naira induces 1.50 percent increase in non-oil export. However, degree of openness and inflation has no significant impact on non-oil export. The parsimonious ECM also shows that the current value of exchange rate has significant positive effect on non-oil export. It was evident from the parsimonious ECM that 1 percent change in exchange rate triggered 0.65 percent increase in non-oil export. The result also reveals that the effect of inflation on non-oil export is positive and significant. The estimated parsimonious ECM is found to be convergent as the error correction coefficient (-0.194) has the expected negative sign and significant at 5 percent level. In view of the findings, this paper recommends that the Central Bank of Nigeria and other stakeholders in the Nigerian financial system should strive to promote Nigeria exchange rate stability to boost the competitiveness of Nigeria's non-oil export at the international market.