EFFECT OF EXCHANGE RATE ON THE BALANCE OF PAYMENT OF NIGERIA

ABSTRACT The study investigates empirically the impact of Exchange Rate on Balance of Payment in Nigeria. The broad objective of this study was; to determine the impact of exchange rate on Balance of Payment in Nigeria within the periods of 1986 to 2022. Annual time series data on Exchange Rate, Trade Openness, expenditure on Import, expenditure on Export and Balance of Payment from the Central Bank of Nigeria covering the period 1986 – 2022 were utilized. A model was constructed to incorporate Balance of Payment as the independent variable, and exchange rate, expenditure on Import, expenditure on Export and trade openness as the dependent variables and tested using the Ordinary Least Square (OLS) Methods. The Stationarity (Unit roots) status of the series was examined using the appropriate statistics. Some of the assumptions of the OLS models were also tested to avoid spurious regression. The granger causality test was also conducted to determine the directions of causality. However, the result of this study indicates that exchange rate and expenditure on export has positive relationships with balance of payment in Nigeria; the result also indicated that expenditure on import and trade openness has negative relationships with balance of payment in Nigeria. The study recommends that the government should as much as possible encourage the production of most of the imported goods in the country by the local industries as well as encourage import substitutions