Exchange Rate Reform Policies and Trade Balances in Nigeria

Abstract

This paper investigates the effect of the exchange rate on the trade balance in Nigeria between 1970 and 2012. Annual data were collected from the Central Bank of Nigeria’s Statistical Bulletin, and World Development Indicator of the World Bank. Co-integrating and Error Correcting Method were used for this estimation. The main findings that emerged from the study were that; the levels of income of the country as well as its trading partners were strong determinants of the trading activities in Nigeria economy, the effect of exchange rate on trade balance was significant in the long run, but contrary to the aspiration of the policy makers and in contrast to the j- curve hypothesis, the exchange rate had an inverse relationship with the trade balance in Nigeria.

Keywords: Exchange Rate, Trade Balances, National Incomes JEL Classification Codes: F31, F19, F43