Exchange Rate Fluctuations And Trade Flows In Nigeria: A Time Series Econometric Model

1.3 RESEARCH QUESTIONS

In view of the above problems, the following research questions are raised:

1. What are the effects of different macroeconomic policies on exchange rate in Nigeria?

2. What is the level of exchange rate fluctuations transmission to trade flows (exports and imports) variability in Nigeria?

3. Does any long-run linear combination of cointegrating vectors of trade and exchange rate fluctuations exist and the short-run dynamic adjustment process by which trade could converge on its equilibrium position in Nigeria?

1.4 OBJECTIVES OF THE STUDY

The overall objective of the study is to examine empirically the link between exchange rate fluctuations and Nigeria?s trade flows (oil and non-oil trade) by first determining the effect of different policy frameworks on exchange rate.

Specifically the study intends to:

• Determine the effect of different policy framework on exchange rate in Nigeria.

• Ascertain the transmission level of exchange rate fluctuations on exports and imports (trade) variability in Nigeria.

• Assess the long-run linear combination of cointegrating vectors of trade and exchange rate fluctuations and the short-run dynamic adjustment process by which trade could converge on its equilibrium position in Nigeria.

1.5 RESEARCH HYPOTHESES

The following research null hypotheses are tested

• Different macroeconomic policy framework applied do not significantly affect Nigeria?s exchange rate.

• Exchange rate fluctuations do not transmit significantly on exports and imports variability in Nigeria.

• There is no significant long-run linear combination of cointegrating vectors of trade flows and exchange rate fluctuations in Nigeria.

1.6 SIGNIFICANCE/POLICY RELEVANCE OF THE STUDY

The study is of relevance to the Nigerian economy in the following ways:

It serves as a future guide to the policy makers in the formulation of better and efficient policy options for managing exchange rate fluctuations in Nigeria. Also, the research is of immense help to the general economy, as it provides possible measures that monetary authority could adopt in order to maintain stability in exchange rate so that, it can influence importantly export growth, consumption, resource allocation, employment and private and foreign investments as research has shown. Above all, it adds to the existing literature thus, provides relevant information that could guide further researchers on the subject.

1.7 SCOPE OF THE STUDY

The discussions in this work are based on the macroeconomic issue (exchange rate fluctuations) affecting Nigerian economy in the growth of its cross-border trading and international competitiveness. Hence, the study is limited to the Nigerian economy for the period covered, which is 1980 – 2008. This range is chosen to ensure availability of data and for the analysis to be meaningful and aid in the achievement of the objectives  of the work.

1.8 SUMMARY

In the foregoing, we have tried to set out the research problems, motivation and objectives of the study.

In the next section, the theoretical and empirical literature is reviewed to provide a link between theory, previous documented evidence and what this work intends to achieve.