NAIRA DEVALUATION AGAINST U.S. DOLLAR AND GROWTH OF EXPORTS IN NIGERIA, 1999-2022: GRANGER CAUSALITY EFFECT

Abstract

The study examined the effect of naira devaluation in Nigeria on the country’s exports for 1999-2022.  Currency devaluation is a strategy adopted by countries to increase their exports and reduce imports.  It serves to mitigate deficit balance of trade in a country as well as protect domestic industries.  When a domestic currency is devalued, the country’s exports become cheaper than those of its foreign counterparts hence, imports for such country become more expensive than the exports.  Time series data for annual rate of exports, imports, official naira to US$ exchange rate and external debt stock of Nigeria are used in the study after ascertaining their stationarity using Augmented Dickey Fuller Unit Root test.  This is to avoid spurious results and inferences that emanate from the use of non-stationary data in analysis.  The Unit Root test shows all the time series as integrated at levels.  This means that there is no long run relationship between the variables.  Granger Causality test was used to unravel the causality effects of the variables.  It is a statistical hypothesis test for determining whether one time series is useful in forecasting another.   The results show only one direction causality between the growth rate of Nigeria’s debt stock  and its imports which also is significant while its exchange rate to US$ does not have any causal effect on its exports and imports.  Hence, the study recommends among others, that to reduce imports in Nigeria, the country should reduce its external debt stock.