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Re- Evaluation of the Effectiveness of Exchange Rate Depreciation on Import Demand in Nigeria
Abstract
The study investigated the impact of exchange rate depreciation on import demand in Nigeria
from 1986 to 2021. The data used was sourced from Central Bank of Nigeria. Ex-post facto
research design was adopted in the investigation. Multiple regression analysis was employed, in
which Auto-Regressive Distributed Lag (ARDL) model as the method of analysis was utilized in
the research. The ARDL model evaluates short-run and long-run interactions among the
specified variables. The unit root tests conducted using Augmented Dickey-Fuller (ADF)
revealed that the time series variables used were stationary at level and the first difference, but
none of the variables was stationary at the second difference. The ARDL – Bound test analysis
revealed the existence of long-run equilibrium relationship between exchange rate depreciation
and import demand in Nigeria within the period of the study. The coefficient of error correction
mechanism was statistically significant and also negatively signed. The results equally found that
exchange rate depreciation is statistically not significant and negatively impacted on import
demand in Nigeria in the short-run. However, in the long-run, exchange rate depreciation is
negatively impacted to import demand and statistically significant. Causal relationship does exist
between exchange rate depreciation and import demand in Nigeria with causation running from
import demand to exchange rate depreciation. On the basis of the findings, the researcher made
the following recommendations among others: Government should consider inward looking to
strengthen the imports substitution policies that ensure massive production of goods and
services.
