EXCHANGE RATE FLUCTUATION AND ECONOMIC GROWTH IN NIGERIA

This study examines the relationship between exchange rate fluctuations and economic growth in Nigeria, focusing on the period from 1990 to 2023. The primary objective is to assess the impact of exchange rate volatility on Nigeria’s Gross Domestic Product (GDP), as well as to explore the causal relationships between exchange rates, government expenditure, gross fixed capital formation, labor force, and money supply. The theoretical framework is grounded in the Balance of Payments Constraint Theory and the Purchasing Power Parity (PPP) Theory, which explain the effects of exchange rate fluctuations on economic growth through trade balances and inflation dynamics. The Auto-Regressive Distributed Lag (ARDL) model was employed to estimate both short-run and long-run effects, given its capacity to handle variables integrated at different orders. The findings reveal a significant negative relationship between exchange rate volatility and economic growth, with depreciation of the naira leading to a reduction in GDP. Additionally, gross fixed capital formation, government expenditure, and money supply were found to positively influence economic growth in the long run, while short-run effects varied. Labor force expansion had a positive but statistically insignificant impact. The study recommends that policymakers prioritize exchange rate stability through targeted fiscal and monetary policies to foster economic growth. Additionally, enhancing investments in infrastructure and human capital development are crucial for long-term economic sustainability. These measures are essential for mitigating the adverse effects of exchange rate fluctuations and promoting Nigeria’s economic resilience.