AN ECONOMETRIC ANALYSIS OF THE EFFECT OF REAL EXCHANGE RATE ON ECONOMIC GROWTH IN NIGERIA

The real exchange rate between naira and dollar varies freely over the years. Presently, it fluctuates on hourly, daily and weekly basis over the years. There is no limit to variability. Thus, this study seeks to re-examine the causal relationship between real exchange rate and economic growth in Nigeria within the period under review (1980 to 2015). Using annual data of selected macroeconomic variables (real exchange rate, degree of openness, broad money supply, consumer price index, real interest rate and real GDP), the study carried out the Unit root test, Co-integration and employing the use of dynamic OLS (DOLS) and Granger Causality test technique and the data were sourced from CBN, Statistical Bulletin and National Bureau of Statistics. The findings of the Unit root test indicated that the variables were stationary and that of co-integration test also showed existence of long run relationship between the variables in the estimated model. Furthermore, the result of DOLS showed that positive relationship existed between real exchange rate, broad money supply and real GDP whereas an inverse relationship existed between degree of openness, consumer price, real interest rate and real GDP respectively. Finally, Granger Causality test confirmed both unit and bi-directional relationship within the model. The study concluded that real GDP is influenced by dynamic variables-real exchange rate, degree of openness, broad money supply, consumer price index, real interest rate in Nigeria. The study therefore suggested that the Central Bank of Nigeria should institute policies that will stabilize the magnitude of the variables and the effectiveness of the management and monitoring of all these vital variables will in no doubt boost real GDP in Nigeria.