Floating exchange rate and economic growth in Nigeria

The exchange rate, when solely determined through the interplay of market forces of demand and supply, is expected to be self-adjusting, realistic, and without the need for official intervention by Central Banks. However, despite the managed floating exchange rate policy being practiced in Nigeria, a realistic exchange rate has remained elusive to the detriment of the economy. Hence, this study examined the impact of floating exchange rate regime on economic growth in Nigeria from 1986 to 2023, using the Autoregressive Distributed Lag (ARDL) estimation technique in line with the study objectives. The secondary data used in this study were sourced from the Central Bank of Nigeria Statistical Bulletin of various issues. The variables used include GDP growth rate, the dependent variable and a measure for economic growth. The independent variables include exchange rate, interest rate, inflation rate, foreign reserve, and oil revenue. The findings revealed that exchange rate had a negative and significant impact on Nigeria GDP growth rate, both in the short and long-run, highlighting the vulnerability of Nigeria’s economy to exchange rate volatility. The study, therefore, recommended policies geared at expanding foreign exchange reserves, promoting non-oil exports, and ensuring greater efficiency in the foreign exchange market, in order to mitigate the adverse effect of exchange rate volatility on economic growth in Nigeria. Keywords: Exchange Rate, Economic Growth, Interest Rate, Foreign Reserve, Inflation Rate.