INVESTIGATING THE CAUSAL RELATIONSHIP BETWEEN EXCHANGE RATE FLUCTUATIONS AND ECONOMIC GROWTH IN NIGERIA (1991–2022) USING GRANGER CAUSALITY

This study investigated the causal relationship between exchange rate fluctuations and economic growth in Nigeria (1991 - 2022). This study aimed to examine the trends of exchange rates and economic growth in Nigeria from 1991 to 2022, assess the effects of exchange rate fluctuations on economic growth in Nigeria from 1991 to 2022, and investigate the causal relationship between exchange rate fluctuations and economic growth in Nigeria during the study period. Descriptive statistics were used to analyze trends in key variables such as GDP, inflation, interest rates, and exchange rates. The ARDL model was employed to assess the long-term effects of exchange rate fluctuations on economic growth. Granger Causality tests were utilized to determine the directional relationships between exchange rate fluctuations, GDP, inflation, and interest rates. Descriptive statistics revealed that GDP had a high mean of 5.43e+13 and a median of 3.25e+13, indicating a right-skewed distribution with substantial variability. The inflation rate showed a mean of 18.42% and a skewness of 2.15, suggesting a prevalence of high inflation rates. Interest rates appeared more stable, with a mean of 7.59% and near symmetry, while the exchange rate displayed moderate right-skewness, reflecting economic fluctuations. These findings underscore the dynamic nature of Nigeria’s economic environment, where changes in GDP, inflation, interest rates, and exchange rates impact economic stability. Graphical analysis highlighted key trends in these variables over the period. GDP exhibited steady growth, especially from 2001 onward, suggesting an economic boom during this period. Inflation rates initially spiked but stabilized at lower levels, reflecting successful corrective measures following economic volatility. The exchange rate was relatively stable in the early years but experienced significant fluctuations between 1999 and 2008, indicating periods of economic instability. Interest rates showed responsiveness to economic conditions, with cycles of sharp increases and decreases linked to efforts to control inflation and address economic downturns. The Augmented Dickey-Fuller (ADF) test indicated that all variables were non-stationary at levels but became stationary at their first differences, indicating integration of order I(1). The ARDL error correction model confirmed a significant long-run relationship between GDP and other economic indicators, with exchange rates showing a negative impact on GDP. In contrast, inflation and interest rates were not statistically significant. The Granger causality test revealed a bidirectional causal relationship between exchange rates and GDP, indicating a long-term interdependence between these variables. However, inflation did not Granger-cause GDP, suggesting a more complex interaction between inflation and economic growth. The study concluded that exchange rate fluctuations significantly affect Nigeria’s economic growth over the long run, highlighting the importance of exchange rate stability for sustained growth. The study therefore recommended that Government should implement monetary and fiscal policies aimed at stabilizing exchange rates, as this can include foreign exchange reserves management, interventions in the foreign exchange market, and maintaining favorable trade balances to reduce the volatility of exchange rates, in the study area