An Empirical Analysis of Exchange Rate Volatility on Export Trade In a Developing Economy

Abstract

This paper investigates the impact of exchange rate volatility on export in Nigeria. The paper employed three models, viz: Ordinary Least Square (OLS); Granger causality test; and ARCH and GARCH techniques and also Augmented Dickey-Fuller technique was used in testing the presence of unit root. The results of unit root suggested that all the variables in the model are stationary at first difference, while causality test revealed that there is causation between export and exchange rate in the country, but the causation flows from exchange rate to export. Thus, exchange rate causes export. Furthermore, ARCH and GARCH results suggested that the exchange rate is volatile nevertheless export is found to be non-volatile. The study further showed that exchange rate is impacting positively on export, as shown by the regression results. The elasticity results revealed that, the demand for Nigerian products in the World market is fairly elastic. Therefore, for export to improve and foreign exchange earnings increase, the country should depreciate its currency, thereby reducing the price of its products so as to increase demand, which is changing from import-led to export-led economy. Consequently, in order to improve exports, efficient delivery services are needed, such as; power supply, energy resources and infrastructure. The significance of this paper is that, it stands to be a guide to policy makers. It has also push forward empirical discourse and provided literature to future research. Finally, this research recommends the

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