EFFECT OF FLUCTUATING FOREIGN EXCHANGE RATE ON ECONOMIC GROWTH IN NIGERIA.

ABSTRACT This study examined the effect of fluctuating foreign exchange rate on economic growth in Nigeria between 2019-2023. The specific objectives are to determine the effects of exchange rate, inflation and interest rate on gross domestic product (GDP). The panel (Simple) regression model was adopted for analysis of data from time series that were randomly selected from 2019 to 2023 (five years period).The data on the variables were obtained from the Central Bank of Nigeria (CBN) Statistical Bulletin and World Development Indicators, and analyzed using descriptive statistics, unit root as well as bounds cointegration tests and ARDL model. The unit root test results showed that the variables are mixed integrated. While inflation is stationary at levels, the other variables in the model were stationary at first difference. The bounds cointegration test showed that long run relationship exists between GDP growth and the underlying explanatory variables. The findings showed that exchange rate and inflation negatively impacted on economic growth. This finding indicates that increase in exchange rate and price level is detrimental to the growth of the Nigerian economy. There is evidence of a significant positive effect of interest rate on GDP growth. This finding explains the reality in Nigeria, where businesses and households tend to borrow even as interest rate increases, but tend to cut corners by reducing the quality of their products and services or pass-on the increased costs of borrowing to consumers by increasing prices. Given the findings, this study recommends amongst others that the federal government through the CBN should ensure that exchange rate policy should is consistent to provide opportunity for a realistic and stable exchange rate capable of driving economic growth in Nigeria. KEYWORDS: EXCHANGE RATE, INFLATION RATE, INTEREST RATE, ECONOMIC GROWTH AND GDP