Exchange Rate Movement and Balance of Payments Position in the Nigerian Economy.

ABSTRACTThis study analyses the relationship between exchange rate and balance of payments position in Nigeria for the period 2000 - 2021. The purpose of this paper is to review a number of approaches that are available for determining an appropriate exchange rate level for a developing economy.1 Developing countries in recent years have been experiencing increasing balance of payments difficulties that, in many instances, are attributable to their foreign exchange regimes. In a typical situation, the government maintains an exchange rate fixed at an unrealistic level, while the level and composition of imports are determined by quantitative restrictions that give rise to the misallocation of resources. In an effort to overcome these problems and to re-establish conditions for reasonable economic growth and a sustainable balance of payments position, many countries resort to adjustment programs, including exchange rate actions. However, before any exchange rate action can take place, the appropriate new level for the exchange rate must be determined. This paper outlines a series of approaches that, in combination, can be used to address the issue. Using regression analyses, the coefficient of exchange rate shows a positive relationship with balance of payments. The government should protect infant industries by raising high tariffs on those goods produced outside the country in order to encourage consumption of domesticall produced goods and services.