Impact of Exchange Rate on Balance of Payments in Nigeria

Abstract

This study examined the impact of exchange rate on balance of payments in Nigeria. Data for the study which are balance of payments, exchange rate, interest rate, trade openness and crude oil price were extracted from the Central Bank of Nigeria (CBN) statistical bulletin covering the period 1981-2019. The method of data analysis is the Vector Error Correction Mechanism (VECM). The results reveal that there is a positive relationship between balance of payments and exchange rate in Nigeria, exchange rate has significant impact on balance of payments in Nigeria (t-stat = 2.47441) and there is causality relationship between exchange rate fluctuations and balance of payments in Nigeria (p-value = 0.0174 < 0.05). It is therefore the recommendation of this study that the government should encourage make political and industrial peace and stability a top macro-political policy priority.