Empirical Assessment of Foreign Exchange Market Effect on the Nigerian Emerging Economy

Abstract

This study examined Foreign Exchange Market effect on the Nigerian emerging economy. Specifically, the study considers the significant effect of foreign exchange rate, Balance of payment, Inflation rate and Interest rate on the Nigerian economy using time series data for period 1988 to 2014. The study employs the Augmented Dickey Fuller test to carry out the stationarity test of the variable. The Johnson co-integration and error correction mechanism (ECM) statistical techniques where used to ascertain the short run and long run dynamic relationships between the dependent and independent variables. The findings show among others that five period lag of EXR brings a decrease on the economy of Nigeria; an indication that the foreign exchange market had negatively impacted the Nigerian economy within the period of study. Premised on this, the paper recommends that discipline has to be maintained in the foreign exchange market and the parallel foreign exchange market in order to achieve the objective of having a realistic exchange rate.