Currency Devaluation and Economic Growth in Nigeria

Currency devaluation is an economic policy or tool for fiscal equalization and stability, which
might stimulate economic growth. However, as promising as the policy looks on paper,
successive administrations have implemented these devaluation policies aimed at fostering
export-led growth, but the expected benefits have not materialized. Instead, Nigeria has
witnessed a paradox of rising export revenues coupled with sluggish GDP growth and
worsening socio-economic indicators. Hence, this study examined the impact of currency
devaluation on the economic growth of Nigeria. The specific objectives are to: (i) to appraise
the effect of exchange rate on the economic growth of Nigeria; (ii) to examine the impact of
inflation on the economic growth in Nigeria; (iii) to establish the extent to which interest rate
affects the economic growth of Nigeria; (iv) and to investigate how foreign direct investment
(FDI) affect the economic growth of Nigeria. Time series data from 1986 to 2024 was collected
through the Central Bank of Nigeria (CBN) Statistical Bulletin, National Bureau of Statistics
(NBS), International Monetary Fund (IMF), and World Bank. The study employed
Autoregressive Distributed Lag (ARDL) model to analyze the obtained data. The study
revealed that rising exchange rates (currency devaluation) has consistent negative and
significant impact on economic growth of Nigeria in the short-run and long-run. In addition,
the result of the ARDL long-run estimates shows that inflation rate and interest rate negatively
affect economic growth, while FDI had a positive but modest impact on economic growth of
Nigeria majorly through injection of capital and technology. The study concluded that the
deliberate downward adjustment (devaluation of currency) has not significantly promoted
economic growth in Nigeria. Thus, this study recommended that there is the need for exchange
rate stability, macro-economic management, promotion of export-led growth, improved FDI
climate and structural reforms.