Extant literature revealed that international trade plays a key role to address the economic phenomena and can help to earn foreign exchange. Despite the accruable benefits from international trade and the countrys huge oil export that account for about 90 of its foreign exchange earnings, Nigerias trade balance and exchange rate remain unfavourable. The persistent rise in Nigerias exchange rate and unfavourable trade balance in recent time warrants an empirical probe. This study therefore examines the effect of exchange rate, domestic income, foreign income, consumption expenditure, money supply and interest rate on trade balance using a secondary time series data covering a period of thirty years from 1991 2020. The study employed a regression technique of the Ordinary Least Square OLS . All data used were secondary data obtained from the statistical bulletin of Central Bank of Nigeria CBN and National Bureau of Statistics NBS annual publications. After determining stationarity of the study variables using the ADF Statistic, it was discovered that the variables were all integrated at level, first and second difference, and found out to be stationary at their first difference. The study also using Johansen Cointegration Test, found that there is a long run relationship between the variables. Hence, the implication of this result is that there is a long run relationship between trade balance and other variables used in the model. From the result of the OLS, it is observed that exchange rate, domestic income, foreign income and money supply have a positive and significant impact on trade balance in Nigeria. The study recommends that the government should fixed or peg on the exchange rate through the central bank. This will enable the government to buy and sell its own currency against the currency to which it is pegged. The government should strive to reduce inflation to make exports more competitive. The government should also enhance supply side policies to increase long term competitiveness. Edokobi, Tonna David | Okpala, Ngozi Eugenia | Okoye, Nonso John "Exchange Rate and Trade Balance Nexus" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-5 | Issue-5 , August 2021, URL: https://www.ijtsrd.com/papers/ijtsrd45079.pdf Paper URL: https://www.ijtsrd.com/management/public-sector-management/45079/exchange-rate-and-trade-balance-nexus/edokobi-tonna-david
International Journal of Trend in Scientific Research and Development (IJTSRD)
Volume 5 Issue 5, July-August 2021 Available Online: www.ijtsrd.com e-ISSN: 2456 – 6470
@ IJTSRD | Unique Paper ID – IJTSRD45079 | Volume – 5 | Issue – 5 | Jul-Aug 2021
Page 1290
Exchange Rate and Trade Balance Nexus
Edokobi, Tonna David PhD1; Okpala, Ngozi Eugenia2; Okoye, Nonso John3
1Department of Business Administration, Nnamdi Azikiwe University (NAU), Awka, Nigeria
2Department of Accountancy, Nnamdi Azikiwe University (NAU), Awka, Nigeria
3Department of Banking and Finance, Nnamdi Azikiwe University (NAU), Awka, Nigeria
ABSTRACT
Extant literature revealed that international trade plays a key role to
address the economic phenomena and can help to earn foreign
exchange. Despite the accruable benefits from international trade and
the country's huge oil export that account for about 90% of its foreign
exchange earnings, Nigeria's trade balance and exchange rate remain
unfavourable. The persistent rise in Nigeria's exchange rate and
unfavourable trade balance in recent time warrants an empirical
probe. This study therefore examines the effect of exchange rate,
domestic income, foreign income, consumption expenditure, money
supply and interest rate on trade balance using a secondary time
series data covering a period of thirty years from 1991-2020. The
study employed a regression technique of the Ordinary Least Square
(OLS). All data used were secondary data obtained from the
statistical bulletin of Central Bank of Nigeria (CBN) and National
Bureau of Statistics (NBS) annual publications. After determining
stationarity of the study variables using the ADF Statistic, it was
discovered that the variables were all integrated at level, first and
second difference, and found out to be stationary at their first
difference. The study also using Johansen Cointegration Test, found
that there is a long run relationship between the variables. Hence, the
implication of this result is that there is a long r