Impact of Exchange Rate on Economic Growth in Nigeria

This study examined the relationship between exchange rate and the economic growth of Nigeria using annual time series data from 1981 to 2022. The study used the Autoregressive Distributed Lag Bounds test for Cointegration and the Toda and Yamamoto Multivariate Causality Test for analysis. The results showed that exchange rate had a positive and insignificant relationship with economic growth in the long-run in Nigeria. In addition, inflation had a negative and significant relationship with economic growth. Furthermore, foreign direct investment had a positive and significant relationship with economic growth. The causality test showed that there is bidirectional causality between exchange rate and economic growth in Nigeria. Furthermore, there was no significant long-run link between exchange rate and economic growth in Nigeria. Additionally, there was no significant causal link between exchange rate and economic growth in Nigeria. The study therefore recommends that the current policies on foreign direct investment in Nigeria should be strengthened. In addition, the policymakers of the government should put in place a sound macroeconomic policy environment that is stable to ensure the stability of prices. Also, the government should provide incentives to investors and a good enabling environment for the thriving of businesses. Furthermore, there is need to put in place appropriate policies and strategies that will ensure the maintenance of stable exchange rate as this has been shown to be a very important factor influencing the inflow of foreign direct investment.