Exchange Rate Unification and Poverty Nexus in Nigeria (1986–2024)

Nigeria has pursued exchange rate unification as a deliberate macroeconomic policy objective since the Structural Adjustment Programme (SAP) of 1986, culminating in the full unification of June 2023. Despite the centrality of this policy to Nigeria’s economic governance, its poverty implications have received insufficient empirical examination. This study investigates the effect of exchange rate unification on poverty in Nigeria over the period 1986–2024, using the Autoregressive Distributed Lag (ARDL) bounds testing approach. Exchange rate unification is operationalised as the ratio of the official to the parallel market exchange rate, a continuous measure of the degree of rate convergence achieved at each point in time, which is mathematically the inverse of the conventional parallel market premium used to measure exchange rate distortion. While the parallel market premium measures the degree of exchange rate distortion, that is, how far apart the two rates are, the ERU ratio employed in this study measures the degree of exchange rate unification achieved, that is, how close the two rates are to convergence. Poverty is measured using the Multidimensional Poverty Index (MPI). The MPI is constructed using Principal Component Analysis (PCA) from per capita income, life expectancy at birth, agricultural value-added per worker, and household consumption expenditure per capita. The study finds that exchange rate unification significantly worsens poverty in both the short and long run, consistent with the sharp naira depreciation, inflationary pass-through, and deterioration in cost of living observed following Nigeria’s exchange rate reforms. GDP growth reduces poverty marginally in the long run, confirming a modest pro-poor growth effect. These findings establish that exchange rate unification, while necessary for long-run macroeconomic efficiency, imposes significant poverty costs that require deliberate complementary fiscal and social protection policies to mitigate.

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Publication Details

Journal
Journal of risk and financial management
Published
2026-07-02
DOI
https://doi.org/10.3390/jrfm19070495
Primary Topic
Income, Poverty, and Inequality
Type
article
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article

Exchange Rate Unification and Poverty Nexus in Nigeria (1986–2024)

T. O. Akinbobola, Omotola Fadekemi Ajayi, Taiwo Grace Oluwaniyi
Journal of risk and financial management
Income, Poverty, and Inequality
article

Exchange Rate Unification and Poverty Nexus in Nigeria (1986–2024)

T. O. Akinbobola, Omotola Fadekemi Ajayi, Taiwo Grace Oluwaniyi
article en

Abstract

Nigeria has pursued exchange rate unification as a deliberate macroeconomic policy objective since the Structural Adjustment Programme (SAP) of 1986, culminating in the full unification of June 2023. Despite the centrality of this policy to Nigeria’s economic governance, its poverty implications have received insufficient empirical examination. This study investigates the effect of exchange rate unification on poverty in Nigeria over the period 1986–2024, using the Autoregressive Distributed Lag (ARDL) bounds testing approach. Exchange rate unification is operationalised as the ratio of the official to the parallel market exchange rate, a continuous measure of the degree of rate convergence achieved at each point in time, which is mathematically the inverse of the conventional parallel market premium used to measure exchange rate distortion. While the parallel market premium measures the degree of exchange rate distortion, that is, how far apart the two rates are, the ERU ratio employed in this study measures the degree of exchange rate unification achieved, that is, how close the two rates are to convergence. Poverty is measured using the Multidimensional Poverty Index (MPI). The MPI is constructed using Principal Component Analysis (PCA) from per capita income, life expectancy at birth, agricultural value-added per worker, and household consumption expenditure per capita. The study finds that exchange rate unification significantly worsens poverty in both the short and long run, consistent with the sharp naira depreciation, inflationary pass-through, and deterioration in cost of living observed following Nigeria’s exchange rate reforms. GDP growth reduces poverty marginally in the long run, confirming a modest pro-poor growth effect. These findings establish that exchange rate unification, while necessary for long-run macroeconomic efficiency, imposes significant poverty costs that require deliberate complementary fiscal and social protection policies to mitigate.

Journal of risk and financial managementVol. 19(7)
Obafemi Awolowo University (NG)
No poverty
Openalex Percentile: Top 4%
Income, Poverty, and Inequality
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Exchange Rate Unification and Poverty Nexus in Nigeria (1986–2024) — T. O. Akinbobola, Omotola Fadekemi Ajayi, et al. · Journal of risk and financial management (2026) | TGRS Research Map | TGRS