The Competitiveness of Nigeria’s Exports: Does the Choice of Exchange Rate Regime Matter?

Abstract

This study examines the extent to which the exchange rate regime affect the competitiveness of exports in Nigeria between 1987 to 2019.  The study employed the Auto Regressive Distributed Lag (ARDL) model to assess the short-run and long-run changes in  competitiveness in response to the exchange rate regimes implemented and other explanatory variables. The findings reveal that a  flexible exchange rate regime causes a significant decline in export competitiveness. While there is a positive proportionate change in competitiveness in relation to trade openness and inflation, an increase in international oil prices has a negative short-run impact on  competitiveness. The study identified exchange rate regimes and oil price increases as the two channels through which both currency  depreciation and appreciation could adversely affect export competitiveness. The implication of this finding is that when there are  sudden oil windfalls, policymakers should resist the temptation to absorb all the petrodollars domestically to prevent a sharp appreciation of the naira that will cause ‘Dutch disease’ and erode competitiveness. The study also suggests that policymakers should  emphasize exchange rate stability by adopting de facto intermediate exchange rate regimes which ensures the stability of the exchange  rate within a limited band and close the wide gap between official and parallel market exchange rates.