Assessing the Effects of Exchange Rate Volatility on Nigeria’s Balance of Payments
Keywords:
Exchange Rate Volatility, Balance of Payments, Trade BalanceAbstract
This study, Assessing the Effects of Exchange Rate Volatility on Nigeria’s Balance of Payments, investigates the relationship between exchange rate fluctuations and the balance of payments (BOP) dynamics in Nigeria. Exchange rate volatility is a significant economic phenomenon that influences trade balances, foreign investment, capital flows, and overall economic stability. Given Nigeria’s reliance on oil exports and its exposure to external shocks, understanding how exchange rate volatility impacts the balance of payments is crucial for policymakers, businesses, and investors. Using a time series analysis of economic data from 2000 to 2020, the study explores the interplay between exchange rate movements, trade balances, foreign direct investment (FDI), and remittances. The findings suggest that exchange rate volatility significantly affects Nigeria’s trade balance, with higher volatility leading to a deterioration of the BOP. Additionally, exchange rate fluctuations were found to impact FDI inflows, although the effect varies depending on the sector. The study concludes by offering policy recommendations aimed at mitigating the adverse effects of exchange rate volatility, including enhancing exchange rate stability, diversifying the economy, and improving trade and investment policies.
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