Ilorin Journal of Economic Policy

Exchange rate, external reserves and current account balance nexus in oil-dependent countries: A Toda-Yamomoto-based Panel Vector Autoregressive (PVAR) approach

Tirimisiyu F. Oloko, Muritala O. Ogunsiji — Tue, 21 May 2024 00:00:00 +0000

The international monetary authorities have been consistently advising oil-dependent countries to change their exchange rate policy from a fixed to a floating exchange rate regime. While some of these countries including Nigeria have announced their adoption of a free-floating exchange rate system, evidence shows that the majority are suffering from “fear of floating”, hence operating an abridged exchange rate system. This study employs the Toda-Yamomoto-based Panel Vector Autoregressive (PVAR) model to use the causality approach to determine the exchange rate system that best explains the de facto exchange rate policy system operating in these countries. This is explained by the dynamic causality between exchange rates and foreign reserves. The dynamic causality between the exchange rate and current account balance also explains the potential effect of devaluation to improve the external trade balance, which implies the J-curve and Marshall Lerner condition. The results show that there is no significant causality from foreign reserves and trade balance to the exchange rate, suggesting that oil-dependent countries are more aligned to a fixed exchange rate regime than a floating exchange rate regime. We also find significant negative causality from the exchange rate to foreign reserves, while foreign reserves have a positive causal effect on the current account balance. This implies that the expected devaluation gains that may be prompting oil-dependent countries to stick to fixed exchange rate regimes are not there, as currency devaluation tends to worsen trade performance and foreign reserves rather than improve them. While oil-dependent countries are not benefiting much from a fixed exchange rate system, it is recommended that appropriate policy to boost private sector generation of foreign exchange should be put in place before the adoption of a full-fledged floating exchange rate system.

Exchange rate movement and stock returns in most capitalised economies in Sub-Saharan Africa

Ibukun Ogunsanya, Temitope Wasiu Adamson — Tue, 21 May 2024 00:00:00 +0000

In line with the extant literature that financial markets do mutually cooperate, this study investigates the nexus between exchange rate movement and stock returns in the six most capitalised economies in Sub-Saharan Africa (SSA). The study ascertains the relevance of the traditional or portfolio adjustment theory to sub-Saharan Africa’s financial markets. The study accounted for heterogeneity and dependence among the cross-sections and applied the Driscoll and Kraay and the Feasible Generalised Least Square econometric procedures on Bloomberg (2023) monthly datasets spanning between 2000:1 and 2022:12. The study findings reveal the nexus between the variables flows from stock returns to the exchange rate in SSA and some consistency with the argument of the portfolio adjustment theory. Estimates of Dumitrescu-Hurlin's (2012) Granger non-causal test also reveal a unidirectional causal relationship between both variables in the most capitalised economies in SSA. Macroeconomic policies that vitiate the limitations of both variables in SSA are recommended.

Public finance instruments and output growth in Nigeria

Nosakhare Liberty Arodoye — Tue, 21 May 2024 00:00:00 +0000

This study investigates the empirical relationship between the aggregated and disaggregated components of fiscal policy variables and output growth in Nigeria using the vector error correction mechanism for the period of 1981 to 2021. This formulation was an improvement over previous empirical studies of the impact of public finance instruments on output growth in Nigeria. Our findings suggest that fiscal policy instruments (total expenditure, capital expenditure, recurrent expenditure, total revenue, primary fiscal balance, domestic debt, external debt, oil tax revenue, and non-oil tax revenue) exert significant impacts on output growth and most of the empirical results obtained support the hypothesised relationships between public finance instruments and output growth in Nigeria. However, aggregate federal government expenditure exerts a significant negative impact on output growth, while on the disaggregated scale, capital expenditure exerts a significant positive influence on output growth whereas recurrent expenditure exerts a significant negative impact on output growth. Given these findings, we recommend that the government of Nigeria, through its fiscal authorities, should adopt growth-enhancing fiscal policies that would engender macroeconomic stability and will be potent in refocusing recurrent expenditure towards ensuring productivity growth.

Institutional systems and quality of life in Sub-Saharan Africa

Peter Tobi Awe, Abdulganiyu Idris Abdulrahman — Tue, 21 May 2024 00:00:00 +0000

This study examined the impact of institutional systems drawn from economic and political institutions on the quality of life in Sub-Saharan Africa. A panel data of thirty-seven Sub-Saharan African countries over the period 2007 to 2021 sourced from the World Bank database and Heritage Foundation. A two-step system-Generalised Method of Movement (GMM) technique was employed to estimate the model. The Sargan test for over-identification restriction and the Arellano-Bond test for second-order serial correlation were conducted. The study reveals that there is a positive relationship between the institutional systems and the quality of life in Sub-Saharan Africa. The study concluded that, for the quality of life in Sub-Saharan Africa to improve, the government in Sub-Saharan Africa should implement laws and policies that will strengthen the existing institutions to improve the quality of life of the people.

Prevalence of malaria and infant mortality in Kogi State, Nigeria

Usio Uchechi Taiga, Ilemona Adofu, Okwudili Walter Ugwuoke — Tue, 21 May 2024 00:00:00 +0000

This study adopts a descriptive survey research design with a quantitative approach to examine the impact of malaria prevalence on infant mortality in selected local government areas across all three senatorial districts of Kogi State, Nigeria. The study covers Lokoja and Ajaokuta LGAs from the Central district, Omala, Igalamela-Odolu, Ibaji, and Bassa LGAs from the East district, and Kabba/Bunu LGA from the West district. These local government areas were selected based on their proneness to flooding and the presence of rivers nearby. Utilising a randomly selected population, data was collected through structured questionnaires and analysed using Binary Logistic Regression. While the results indicate a positive relationship between malaria prevalence and infant mortality, the statistical significance is not established. The study underscores the financial and economic burden associated with malaria treatment, transportation, and prevention, suggesting the need for a comprehensive approach to public health challenges. Policy recommendations include improving healthcare accessibility, promoting awareness campaigns, implementing targeted subsidies for antimalarial medications, and enhancing public transportation services to facilitate easier access to medical facilities.