EFFECTS OF DOLLARIZATION ON CONSUMPTION AND BALANCE OF PAYMENT EXPENDITURE IN NIGERIA

The study examined the impacts of dollarization on BOP and Consumption expenditure in Nigeria. Consequently, specific objectives were formulated as follows: accessing the impact of dollarization on balance of payment position in Nigeria and examining the impact of dollarization on consumption expenditure in Nigeria. Since the data were time series data, they were subjected to ADF test to ascertain the level of stationarity and the result shows mixed order of integration (order zero and one). Based on this scenario, the study decides to estimate the equations using the autoregressive distr ibutive lag (ARDL) co-integration technique. The result shows a positive impact of dollarization on balance of payments. The result also shows that domestic interest rate and exchange rate have positive and significant impact on balance of payment. This means, an increase in exchange rate has severe impact on balance of payments as indicated by the coefficients of the variable in the short run. The statistical significance of the variable further confirmed its impact on the balance of payments. From the outcome of the consumption expenditure equation, dollarization has both positive and negative impact on consumption expenditure. This is as a result of the fact that most of the consumer goods in Nigeria are made of imported foreign goods and as exchange rate falls consumption expenditure falls. The inflation rate does not have a statistically significant impact on consumption because if consumers expect that prices will rise in the near future; they hasten to spend large sum out of a given income to take advantage of current low prices.