Exchange Rate Regimes and Economic Performance in Nigeria: 1970 – 2015

Abstract

This paper investigates the relationship between exchange rate regimes and economic growth in Nigeria.The paper relies on the Generalised Methods of Moment (GMM) simultaneous equation and the Granger causality test to investigate the impact of exchange rate regimes on economic growth in the two regimes of exchange rate policies implemented in Nigeria between 1970 and 2015 namely, the regulated (1970-1985), the deregulated (1986-2015) as well as the combined period. (1970-2015). The study showed that in the period of exchange rate rgulation1970-1985, exchange rate was positive but insignificant in driving economic growth. On the other hand a negative and significant relationship was observed between exchange rate and economic growth in the de- regulated regime (1986-2015) and the overall period of 1970-2015. From the study it could be inferred that government intervention is necessary in determining the exchange rate regime that will drive a meaningful economic growth in Nigeria. We therefore recommend a review of the current exchange rate policy of complete deregulation. We suggest instead of a complete float system, a policy of more conscientious implementation of the guided deregulation to halt the free-fall in the external value of the Naira that has become rife under the free- float system with damaging consequences for economic growth.