The effect of exchange rate volatility on international trade in Nigeria

Abstract

The study examined the effect of exchange rate volatility on international trade in Nigeria. The specific objectives were to investigate the impact of exchange rate on import and export in Nigeria. The study employed an ex post facto research design and used monthly data from January 2013 to December 2023. Generalized Autoregressive Conditional Heteroskedasticity (GARCH) methodology was employed in the study to measure exchange rate volatility. Vector Autoregression (VAR) model was used to analyze the relationships between exchange rate volatility and trade variables. While the Impulse Response Function (IRF) was used to examine the impulse responses of trade variables to exchange rate volatility shocks, the Granger Causality test was used to determine the causality between exchange rate volatility and trade variables. Findings showed that exchange rate volatility has a significant negative effect on imports and a positive effect on exports on the Nigeria economy. Based on the findings, it was recommended that exchange rate management is crucial for trade policy decisions in Nigeria. JEL Classification: C58, F18, F31