The Impact of Trade Flows and Corruption on Exchange Rate Stability in Nigeria

ABSTRACT
This study sets out to empirically determine the impact of trade flows and corruption on exchange rate in Nigeria. The study employs secondary data spanning the time frame of 1996 to 2023, a period of 28 years. The study makes use of Autoregressive distribution lag (ARDL) in alignment with the results obtained from conducting the Augmented Dickey Fuller unit root test. The empirical findings drawn from model 2 indicate that, in the short run, imports have a positive relationship with exchange rate whereas, control of corruption, export and the interactive model have a negative one. In the long run, model 2 identified that control of corruption, import and export are statistically insignificant in the long run whilst the interactive variable is positively impacts exchange rate with a statistical significance at 1%. This implies that trade flows are short term determinants of exchange rate stability in Nigeria. It equally infers that control of corruption may initially lead to short term economic disruptions but has the propensity to beneficial in the long run, though not significantly. The interactive model is both statistically significant in both the short term and long term. This emphasizes the need for reduced levels of corruption in order to actualize desired economic outcomes.
Guided by such results, the study proposes comprehensive recommendations to bolster anti-corruption efforts in Nigeria, fostering a more accountable and transparent governance framework. Additionally, recommending a diversification of the country’s export base.

Key words: Exchange rate, trade flows and corruption