AN ASSESSMENT OF THE IMPACT OF EXCHANGE RATE FLUCTUATIONS ON ECONOMIC GROWTH IN NIGERIA. A RESEARCH PROJECT MATERIAL ON INSURANCE
This study investigates on “An assessment of the impact of exchange rate fluctuations on economic growth in Nigeria”. The researcher uses multi-regression analysis to capture his result, by applying ordinary least square (OLS) techniques. The dependent variable Real Exchange rate (RER) was captured by independent variables which include; Real Gross Domestic Product (RGDP), Real Interest Rate (RINT), Trade Openness (TON), Real Money Supply (RMS) and Inflation Rate (INF). From the Hypothesis stated in chapter one, “That Exchange Rate fluctuations have impact on economic growth. Analysis of OLS, showed that independent variables used confirm to the apriori expectations except Real Gross Domestic Product and Inflation. Also, from the results obtained showed that exchange rate fluctuations in Nigeria can be brought about by trade openness, Real money supply, Real interest rate, but Real Gross Domestic Product and inflation has no effect in Exchange rate fluctuations in Nigeria Economic growth, and this may be as a result of inadequacy in data used or human factor. Based on the findings, the researcher put forward the following recommendations: (i) The application of demand management and expenditure switching policies that should stabilize macroeconomic aggregates including exchange rates and improve the growth performance of the economy. (ii) The protection of domestic industries using appropriate trade policies is important in order to make domestic goods more competitive in the international market. (iii) Government should provide adequate incentives to domestic producers in the form of tax reduction and other subsides, which would reduce production costs and the prices of domestic goods. Thus making them more attractive globally.
1.1 BACKGROUND OF THE STUDY
Globalization is soaring by the day since the end of the World War II. According to Samuelson (2002), “Most of the world economies have been enjoying growing economic cooperation, widening trade linkages, increasing integrated financial market and rapid economic growth”. We are therefore faced with the stark reality that no nation is an Island unto herself.
International trade provides the important economic links among nations. Thus, as nations trade with other nations, there is exchange of currencies since every country uses a unique currency for domestic transactions.
An exchange rate means the price of one currency in terms of another. It is the rate at which one currency is exchanged for the other (Anyanwokoro, 1999:109). A fall in exchange rate denotes depreciation while a rise signifies appreciation. As domestic currency depreciates, that of the foreign appreciates and vice-versa.
However, this study focuses only on the appreciation and depreciation of the naira vis-à-vis the U.S Dollar.
Therefore, exchange rate is an important macroeconomic variable which every government looks up to as they push for macroeconomic stability and economic progress.