Empirical Analysis of Exchange Rate Fluctuations and Gross Fixed Capital Formation in Nigeria

  • Chris AC-Ogbonna Department of Economics Veritas University, Abuja, Nigeria
Keywords: Empirical Analysis, Exchange rate Volatility, Gross Fixed Capital Formation, Nigeria

Abstract

This study investigated the effect of exchange rate Volatility on gross fixed capital formation. Mundell-Fleming Model is used as a theoretical framework for establishing relationship between relevant variables. The erratic fluctuation in exchange rates referred to as exchange rate volatility could be described as periods of domestic currency appreciation or depreciation. Exchange rate has considerable attention in terms of its influence on gross fixed capital formation. The study covered the period between 1980-2016 and Ordinary Least Square (OLS) techniques was used in estimating the relationship between the variables included in the specified regression model. The data was collected from Central Bank of Nigeria Statistical Bulletin and the World Bank Indicators for Nigeria. The major finding of this study shows that the Exchange rates (EXCHR) has a positive and significant linear relationship with gross fixed capital formation. This implies that a unit increase in naira gain against other currencies will result to 0.961 increases in GFCF. The result equally shows that the Degree of trade openness (TOP) has negative and significant relationship with Gross fixed capital formation .This implies that a unit increase in trade openness will result to a 1.613 unit decline in GFCF. The result of Inflation rate (INFL) has negative and significant relationship with gross fixed capital formation. This implies that a unit increase in inflation will result to a 0.558 unit decline in GFCF. It implies that Stringent trade measures should be adopted to checkmate inflation mostly the imported inflation through foreign trade. The study therefore recommends that monetary authorities should adopt measures that will strengthen the naira against other currencies. Also that Stringent trade measures should be adopted to protect local industries and reduce the depletion of our foreign reserves through excessive importation. This can be achieved through high tariffs, quotas and outright ban on some certain goods and services. 

References

Akinmoladun I. (1990), “External debt, Investment and Economic Growth: Evidence From Nigeria.” Central Bank of Nigeria: Economic and Financial Review, Vol.44 (1), 81- 113.
Adetuloye, I . (2012), “Effect of External Debt on Economic Growth and Development of Nigeria.” International Journal of Business and Social Sciences.Vol.3 (12): 26
Akpokeje O.A,(2000). Exchange Rate Volatility on Investment and Growth in Nigeria, an Empirical Analysis. Global Journal of Management and Business Research, Vol.5 (10) 23-16
Agnes, G.and Coeure B. (2001). Impact of foreign exchange volatility on import: A case of Nigeria foreign exchange market. Proceedings of the 7th International Conference on Innovation and Management The Impact of Exchange Rate Fluctuations on Private Domestic Investment Performance in Nigeria DOI: 10.9790/5933-0703010715 www.iosrjournals.org 15 | Page
Akujuobi, V. (2007) ‘Segmented Asset Markets and Optimal Exchange Rate Regimes’ Federal Reserve Bank of New York, Iowa State University and UCLA and NBER
Bakare A.S (2011). The Consequences of Foreign Exchange Rate Reforms on the Performances of Private Domestic Investment in Nigeria. International Journal of Economics and Management Sciences,Vol.1(1): 25-31
Central Bank of Nigeria, Annual Report and Statement of Account (2007).
Gomez, P. (1992), “Private Investment in Developing Countries.” IMF Staff Papers, Vol.38, (33) 58.
Imobighe C. and Daina G. (2006). “The Effects of Exchange Rate Variability on International Trade: A Meta Regression Analysis” University of Split, Faculty of Economics.
Jimoh, R. (2006) Foreign Exchange Constraints in Economic Development and Efficient Aid Allocation.” The Economic Journal, Vol.74 (294), 388-409.
Johanson, P.M. (1992), “A Glossary of Political Economy.” Auburn: Auburn University: Department of Political Science.
Romer,J and Lucas S (1986), “The Debt Overhang of Developing Countries. In: Calvo, A.G., Findlay, R., Kouri, P., de Macedo, J., editors. Debt, Stabilization and Development: Essays in Memory of Carlos Diaz Alejandro.” Oxford: Basil Blackwell. 80-102.
Ojo, E. (1991) “External Debt and Economic Growth African Debt Burden and EconomicDevelopment.”Selected papers for the 1994 Annual Conference of the Nigerian Economic Society (NES)May 1994.
Ojamanaye, S. R. (1991) ''The Exchange Rate and Exchange Controls as Instruments of Economic Policy: The Experience of Malawi'', unpublished paper presented at a seminar on “Experience with Instruments of Economic Policy'', in Addis Ababa, Ethiopia
Suleiman. I. (2012).“External Debt Relief and Economic Growth in Nigeria”. American Journal of Economics.Vol. 2(7):11
Shehu, S.D and Aliyu, B. (2006), “Economic growth: Should policy focus on investment or dynamic competition?” European Business Review, 19(4): 279-291.
Taye, M. (1999). The case for flexible exchange rates, in Essays in Positive Economics (Chicago: University of Chicago Press), 157-203
Uremadu, W. (2011) “Corden Says Developing Countries’ Choices Vary According to Specific Economic Circumstances”. IMF Survey, Vol. 30, (3) February.
Published
2020-07-30
How to Cite
Chris AC-Ogbonna. (2020). Empirical Analysis of Exchange Rate Fluctuations and Gross Fixed Capital Formation in Nigeria. International Journal of Research in Social Science and Humanities (IJRSS) ISSN:2582-6220, 1(3), 36-46. https://doi.org/10.47505/IJRSS.2020.9122
Section
Articles