THE IMPACT OF INTERNATIONAL TRADE ON EXCHANGE RATE AND CURRENCY VALUE IN NIGERIA (1990-2022).
Abstract
This study investigates the impact of international trade on exchange rate and currency value in Nigeria between 1990 and 2022. Recognizing Nigeria's heavy dependence on oil exports and rising import bills, the research explores how trade patterns influence the stability of the naira and the overall performance of the exchange rate. Adopting the Purchasing Power Parity (PPP) theory as the theoretical framework, the study employed the Autoregressive Distributed Lag (ARDL) model to capture both the short-run and long-run dynamics of the relationship. Secondary data were sourced from the Central Bank of Nigeria, World Bank, and National Bureau of Statistics. Descriptive analysis revealed significant fluctuations in trade indicators, foreign direct investment, and exchange rates over the study period. Unit root and cointegration tests confirmed that a long-run relationship exists between international trade variables and exchange rate behavior. The ARDL results showed that trade openness, inflation, and imports significantly influence exchange rate volatility in both the short and long run. Additionally, the Granger causality test indicated a unidirectional causal relationship running from trade variables to exchange rate, suggesting that international trade dynamics play a predictive role in exchange rate movements.The study concludes that international trade has a profound effect on exchange rate and currency value in Nigeria. It recommends policies that promote non-oil exports, reduce import dependence, and stabilize trade flows to enhance the strength and stability of the naira in the global market.
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