Impact of Foreign Exchange Rate on Balance of Trade in Nigeria

Abstract

The paper examined the impact of foreign exchange rate on balance of trade in Nigeria using annual time series data, from 1980 to 2020. The data were sourced from World Development Indicators (WDI) 2022, while ARDL technique was employed for data analysis. The balance of trade was the dependent variable, whereas real exchange rate, GDP growth rate and real money supply were used as independent variables. The study found that there is long-run relationship among all variables. In the long-run, real exchange rate has signicant positive relationship with balance of trade while real money supply has negative signicant impact on balance of trade. However, GDP growth rate has positive and insignicant impact. Therefore, the study recommended a stable exchange rate regime which can stimulate exports and restrict imports in order to solve the problem of decits in the balance of trade. Also the study recommended a proper management of money supply in the country because too much money in circulation contributes to ination while persistent ination leads to devaluation of domestic currency