Abstract:
This study investigates the effect of exchange rate movements on real output growth in Nigeria. Based on quarterly series for the period 1986 to 2010, the paper examines the possible direct and indirect relationship between exchange rates and GDP growth. The relationship is derived in two ways using a simultaneous equations model within a fully specified (but small) macroeconomic model. A Generalised Method of Moments (GMM) technique was explored. The estimation results suggest that there is no evidence of a strong direct relationship between changes in exchange rate and output growth. Rather, Nigeria's economic growth has been directly affected by monetary variables. These factors have tended to sustain a pattern of real exchange rate, which has been unfavourable for growth. The conclusion is that improvements in exchange rate management are necessary but not adequate to revive the Nigerian economy. A broad program of economic reform is required to complement the exchange rate policy adopted.
