This study examined the determinants of the exchange rate in a mono-resource economy, during the period of currency and oil price fall in Nigeria. The aim of the study is to ascertain the potentiality of economic diversification (non-oil export) in saving the falling value of the domestic currency, as well as, its stability. The study employed the use of monthly data from the Central Bank of Nigeria and Nigeria National Petroleum Corporation from January 2008 to December 2020 using the ARDL and NARDL models to achieve the stated objectives. In the literature, several empirical studies analyzed the relationship between exchange rates, oil price, and oil export and came to the logical conclusion that a rise in the price of oil would bring about a rise in the exchange rate, all things being equal while the reverse is the case. To add to the existing body of knowledge this study did not only look at the relationship between the variables but also examined the determinants of the exchange rate in a mono-resource economy and ascertained the potentiality of economic diversification in bringing succor to the falling exchange rate in the midst of falling oil price. The NARDL result corroborates the findings of previous studies on the relationship between exchange rate, oil price, and the performance of non-oil export. It maintains that positive changes in oil prices would lead to the appreciation of domestic currency while negative changes in oil prices would lead to the depreciation of the domestic currency. With this analysis, the study recommends the diversification of the economy and revitalization of the non-oil sector. Since import proves to have a negative impact on the exchange rate, the revitalization of the non-oil sector stimulates domestic consumption and thus reduces import bills which raise the demand for the dollar and weakens the naira.
Musa, N.; Izuchukwu, O.; Akadiri, S. S. Assessment of exchange rate determination in a mono-resource economy: A case of Nigeria. Journal of Economic Analysis, 2024, 3, 59. https://doi.org/10.58567/jea03020007
Musa N, Izuchukwu O, Akadiri S S. Assessment of exchange rate determination in a mono-resource economy: A case of Nigeria. Journal of Economic Analysis; 2024, 3(2):59. https://doi.org/10.58567/jea03020007
Musa, Nakorji; Izuchukwu, Oji-okoro; Akadiri, Seyi S. 2024. "Assessment of exchange rate determination in a mono-resource economy: A case of Nigeria" Journal of Economic Analysis 3, no.2: 59. https://doi.org/10.58567/jea03020007
Musa, N., Izuchukwu, O., & Akadiri, S. S. (2024). Assessment of exchange rate determination in a mono-resource economy: A case of Nigeria. Journal of Economic Analysis, 3(2), 59. https://doi.org/10.58567/jea03020007
Article Access Statistics
Abeysinghe, T., and Yeok, T.L. (1998). Exchange Rate Appreciation and Export Competitiveness: The Case of Singapore. Applied Economics, 30: 51–55. https://doi.org/10.1080/000368498326137.
Abolagba, E.O., Onyekwere, N.C., Agbonkpolor, B.N., and Umar, H.Y. (2010). Determinants of Agricultural Exports. Kamla-Raj Journal of Human Ecology, 29 (3): 181–184. https://doi.org/10.1080/09709274.2010.11906261.
Adeniyi, O., Omisakin, O., Yaqub, J., and Oyinlola, A. (2012). Oil Price-Exchange Rate Nexus in Nigeria: Further Evidence from an Oil Exporting Economy. International Journal of Humanity and Social Sciences, 2 (8): 113–121.
Aghion, P., Bacchetta, P., Ranciere, R., and Rogoff, K. (2009). Exchange Rate Volatility and Productivity Growth: The Role of Financial Development. Journal Monetary Economics, 56: 494–513. https://doi.org/10.1016/j.jmoneco.2009.03.015
Aimer, N.M. (2016). The Impact of Oil Price Fluctuations on the Exchange Rate in Libya. Imp. J. Interdisciplinary Research, 2 (12): 599–609.
Akram, Q.F., Holter, J.P. (1996). The Effect of the Dollar Exchange Rate on Oil Prices – An Empirical Analysis. Penger Og Kreditt.
Alalade, S.Y., Adekunle, O.A., Joseph, O.A. (2014. Foreign Exchange Rate Regimes and Non-Oil Export Performance in Nigeria (1986–2010). International Journal of Business and Behavioural Science, 4 (1): 1–22.
Aliyu, S.U.R. (2009). Impact of Oil Price Shock and Exchange Rate Volatility on Economic Growth in Nigeria: An Empirical Investigation. MPRA Paper No. 16319. https://mpra.ub.uni-muenchen.de/16319/
Alley, I.S. (2018). Oil Price And USD-Naira Exchange Rate Crash: Can Economic Diversification Save The Naira. Energy Policy, 118: 245-256. https://doi.org/10.1016/j.enpol.2018.03.071
Alley, I.S., Asekomeh, A., Mobolaji, H., Adeniran, A. (2014). Oil Price Shocks and The Nigerian Economic Growth. European Science Journal, 10 (19): 375–391. https://doi.org/10.19044/esj.2014.v10n19p%2525p
Alley, I.S., Poloamina, I.D. (2015). Private Capital Flow Shocks and Sub-Saharan African Macroeconomic Performance. Journal of International Economic Studies. 29: 61–84. https://doi.org/10.15002/00012486
Amin, A.A. (1996). The Effects of Exchange Rate Policy on Cameroon’s Agricultural Competitiveness. AERC Research Paper No. 42. AERC, Nairobi.
Anning, L., Riti, J.S. & Yapatake, K.T.P. (2015). Exchange Rate and Trade Balance in Ghana- Testing the Validity of the Marshall Lerner Condition. International Journal of Development and Emerging Economics, 3(2): 38-52.
Babatunde, M.A. (2013). Oil Price Shocks and Exchange Rate in Nigeria. International Journal of Energy Sector Management, 9 (1): 2–19. https://doi.org/10.1108/IJESM-12-2013-0001
Bagella, M., Becchetti, L., Hasan, I. (2006). Real Effective Exchange Rate Volatility and Growth: A Framework to Measure Advantages of Flexibility Vs. Costs of Volatility. Journal of Banking and Finance, 30: 1149–1169. https://doi.org/10.1016/j.jbankfin.2005.05.012
Bal, D.P., Rath, B.N. (2015). Nonlinear Causality between Crude Oil Price and Exchange Rate: A Comparative Study of China and India. Energy Economics, 51: 149–156. https://doi.org/10.1016/j.eneco.2015.06.013
Balcilar, M., Uwilingiye, J., Gupta, R. (2018). Dynamic Relationship between Oil Price and Inflation in South Africa. Journal of Development Areas 52 (2): 73–93. https://www.jstor.org/stable/26417015
Bannerjee, A, Dolado, J. And Mestre, R. (1998). Error Correction Mechanism Test for Co-Integration in Single Equation Framework. Journal of Time Series Analysis, 19: 267-283. https://doi.org/10.1111/1467-9892.00091
Barsky, R.B., Kilian, L. (2004). Oil and The Macroeconomy Since The 1970s. Journal of Economic Perspective, 18: 115–134. https://doi.org/10.1257/0895330042632708
Basher, S.A., Haug, A.A., Sadorsky, P. (2016). The Impact of Oil Shocks on Exchange Rates A Markov-Switching Approach. Energy Economics, 54: 11–53. https://doi.org/10.1016/j.jimonfin.2018.05.003
Beckmann, J., Czudaj, R. L., & Arora, V. (2020). The relationship between oil prices and exchange rates: Revisiting theory and evidence. Energy Economics, 88, 104772. https://doi.org/10.1016/j.eneco.2020.104772
Benbouziane, M., Benamar, A. (2007). The Impact of Exchange Rate Regime on the Real Sector in Mena Countries. In: Proceedings of the 27th Annual Meeting of the Middle East Economic Association (MEEA). Chicago, Illinois.
Bleaney, M., Greenaway, D. (2001). The Impact of Terms of Trade and Real Exchange Rate Volatility on Investment and Growth in Sub-Saharan Africa. Journal of Development Economics, 65 (2): 491–500. https://doi.org/10.1016/S0304-3878(01)00147-X
Bredin, F., Murphy (2003). An Empirical Analysis of Short-Run Irish Export Functions: Does Exchange Rate Volatility Matter. International Review of Applied Economics, 17 (2): 193–208. https://doi.org/10.1080/0269217032000064053
Broda, C., Romalis, J. (2004). Identifying the Relationship between Trade and Exchange Rate Volatility. Mimeo, FRBNY, Chicago GCB and NBER IFM Conference. 〈Http://Www.
Buetzer, S., Habib, M.M., Stracca, L. (2012). Global Exchange Rate Configurations: Do Oil Shocks Matter. European Central Bank, Working Paper Series 1442. http://dx.doi.org/10.2139/ssrn.2066527
Central Bank of Nigeria, CBN (2016). CBN Statistical Bulletin, 2016.
Chattopadhyay, Manojit and Subrata Kumar Mitra (2015). Exploring Asymmetric Behavior Pattern from Indian Oil Products Prices Using NARDL And GHSOM Approaches. Energy Policy, 86: 262–72. https://doi.org/10.1016/j.enpol.2015.06.035
Chen, S.S., Chen, H.C. (2007). Oil Prices and Real Exchange Rates. Energy Economics, 29 (1): 390–404. https://doi.org/10.1016/j.eneco.2006.08.003
Department Of Business, Economic Development and Tourism, DBEDT (2011). Measuring Economic Diversification in Hawaii. Hawaii Economic Issues.
Doyle, E. (2001). Exchange Rate Volatility and Irish-UK Trade, 1979–1992. Applied Economics, 33: 249–265. https://doi.org/10.1080/00036840122999
Dregera, C., Kholodilina, K.A., Ulbrichta, D., Fidrmucb, J. (2016). Between The Hammer and the Anvil: The Impact of Economic Sanctions and Oil Prices on Russia's Ruble. Journal of Comparative Economics, 44 (2): 295–308. https://doi.org/10.1016/j.jce.2015.12.010
Egert, B., Morales, Z.A. (2005). Exchange Rate Regimes, Foreign Exchange Volatility and Export Performance in Central and Eastern Europe.
Esanov, A. (2013). Economic Diversification: Dynamics, Determinants and Policy Implications. Revenue Watch Institute.
Feldmann, H. (2011). The Unemployment Effect of Exchange Rate Volatility in Industrial Countries. Economic Letters, 111 (3): 268–271. https://doi.org/10.1016/j.econlet.2011.01.003
Gelb, A. (2013). Economic Diversification in Resource Rich Countries. Paper for the Conference on Natural Resources, Finance, and Development: Confronting Old and New Challenges. The Central Bank of Algeria and International Monetary Fund Institute, Algiers.
General Secretariat for Development Planning, GSDP (2011). Qatar National Development Strategy 2011–2016. GSDP, Doha.
Ghosh, S. (2011). Examining Crude Oil Price-Exchange Rate Nexus for India during the Period of Extreme Oil Price Volatility. Applied Energy, 88 (1): 1886–1889. https://doi.org/10.1016/j.apenergy.2010.10.043
Ghura, D., Greene, T. (1993). The Real Exchange Rate and Macroeconomic Performance in Sub-Saharan Africa. Journal of Development Economics, 42: 155–174. https://doi.org/10.1016/0304-3878(93)90077-Z
Granger, Clive W. J. And Gawon Yoon (2002). “Hidden Co-Integration.” SSRN Electronic Journal. Retrieved (Http://Www.Ssrn.Com/Abstract=313831).
Hasanov, F., Samadova, I. (2010). The Impact of Real Effective Exchange Rate on The Non-Oil Export: The Case of Azerbaijan. MPRA. Working Paper No. 29556, Pp. 1–19. http://dx.doi.org/10.2139/ssrn.1784286
Heru, Wahyudi, R. Weddie Andriyanto, Armeita Tresnaningtyas, Kamadie Sumanda, and Widia Anggi Palupi. (2023). Analysis of Oil Price and Exchange Rate in Indonesia. International Journal of Energy Economics and Policy 13: 27–33. http://doi.org/10.32479/ijeep.13925
Hesse, H. (2008). ‘Export Diversification and Growth. World Bank. Working Paper No. 21.
Huang, S., An, H., & Lucey, B. (2020). How do dynamic responses of exchange rates to oil price shocks co-move? From a time-varying perspective. Energy Economics, 86, 104641. https://doi.org/10.1016/j.eneco.2019.104641
Huang, Y., Guo, F. (2007). The Role of Oil Price Shocks on China's Real Exchange Rate. China Economic Review, 18 (4): 403–416. https://doi.org/10.1016/j.chieco.2006.02.003
Husaini, D. H., & Lean, H. H. (2021). Asymmetric impact of oil price and exchange rate on disaggregation price inflation. Resources Policy, 73, 102175. https://doi.org/10.1016/j.resourpol.2021.102175
Hvidt, M. (2013). Economic Diversification in GCC Countries: Past Record and Future Trends. Kuwait Programme on Development, Governance and Globalisation in the Gulf States http://eprints.lse.ac.uk/id/eprint/55252
Imbs, J., Wacziarg, R. (2003). Stages of Diversification. American Economic Review, 93: 63–86. https://doi.org/10.1257/000282803321455160
Jackson, R.W. (1984). An Evaluation of Alternative Measures of Regional Industrial Classification. Regional Studies, 18: 103–112. https://doi.org/10.1080/09595238400185101
Jain, A., & Biswal, P. C. (2016). Dynamic linkages among oil price, gold price, exchange rate, and stock market in India. Resources Policy, 49, 179-185. https://doi.org/10.1016/j.resourpol.2016.06.001
Jimenez-Rodriguez, R., Sanchez, M. (2005). Oil Price Shocks and Real GDP Growth: Empirical Evidence for Some OECD Countries. Applied Economics, 37 (2): 201–228. https://doi.org/10.1080/0003684042000281561
Kumar, Satish (2017). On The Nonlinear Relation between Crude Oil and Gold. Resources Policy 51: 219–24. https://doi.org/10.1016/j.resourpol.2017.01.003
Leiderman, D., William, M. (2007). Resources: Neither Curse nor Destiny. World Bank and Stanford University Press.
Macdonald, R. (2000). Exchange Rate Economics: Theory and Evidence. Routledge, London. https://doi.org/10.4324/9780203380185
Majidli, F. and Guliyev, H. (2020). How Oil Price and Exchange Rate Affect Non-oil GDP of the Oil-rich Country – Azerbaijan. International Journal of Energy Economics and Policy, 10(5), 123-130. https://doi.org/10.32479/ijeep.9561
Masoud, H., Rastegari, F. (2008). Analysis of Economic-Political Factors Affecting Non-Oil Export of Iran. IDOSI Publications.
Mclaughlin, G. (1930). Industrial Diversification in American Cities. Quarterly Journal of Economics, 44: 131–149. https://doi.org/10.2307/1882529
Mordi, C.N., Adebiyi, M.A. (2010). The Asymmetric Effects of Oil Price Shocks on Output and Prices in Nigeria Using a Structural VAR Model. Central Bank of Nigeria Economic and Financial Review, 48 (1): 1–32.
Mouna, C., Reza, J.N.A. (2001). Trade Liberalisation, Real Exchange Rate, and Export Diversification in Selected North African Economies. 〈Http://Www.Mafhoum.Com/ Press3/95E14.Pdf〉.
Muhammad, Z., Suleiman, H., Kouhy, R. (2011). Exploring Oil Price-Exchange Rate Nexus for Nigeria. Zahid FIW, Working Paper Number 71. https://doi.org/10.1111/j.1753-0237.2012.00219.x
Oaikhenan, H.E. and Aigheyisi, O.S. (2015). Factors Explaining Exchange Rate Volatility in Nigeria: Theory and Empirical Evidence. CBN Economic and Financial Review, 53(2): 47-77. http://dx.doi.org/10.2139/ssrn.3842230
Obstfeld, M., Rogoff, K. (1996). Foundation of International Macroeconomics. MIT Press, London.
Ogun, O. (1998). Real Exchange Rate Movements and Export Growth: Nigeria, 1960–1990. African Economic Research Consortium.
Ogunleye, E.K. (2009). Exchange Rate Volatility and Foreign Direct Investment in Sub- Saharan Africa: Evidence from Nigeria and South Africa (Ph.D. Thesis). Submitted to the Department of Economics, University of Ibadan.
Olomola, A.P., Adejumo, A.V. (2006). Oil Price Shocks and Macroeconomic Activities in Nigeria. International Research and Journal of Financial Economics, 3 (1): 28–34.
Osuji, E. (2015). International Oil Prices and Exchange Rate in Nigeria: A Causality Analysis. International Journal of Academic Research in Economics and Management Science, 4 (3): 11–22. http://dx.doi.org/10.6007/IJAREMS/v4-i3/1798
Oyejide, T.A. (1986). The Effects of Trade and Exchange Rate Policies on Agriculture in Nigeria. IFPRI Research Report No. 55.
Papageorgiou, C., Spatafora, N. (2012). Economic Diversification in Lics: Stylised Facts and Macroeconomic Implications. IMF Discussion Note 12/13.
Pesaran, M.H., Shin, Y. and Smith, R. J. (2001). Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics, 16(3): 289–326. https://doi.org/10.1002/jae.616
Pilbeam, K. (2006). International Finance, 3rd Edition. Palgrave Macmillan, London. Research Paper.
Riti, J.S. and Kamah, M. (2015). Inflation Targeting and Economic Growth in Nigeria: A Vector Auto Regressive (VAR) Approach. European Journal of Contemporary Economics and Management, 2(1): 42-63. http://dx.dio.org/10.19044/elp.v2no1a3
Rodgers, A. (1957). Some Aspects of Industrial Diversification in The United States. Economic Geography, 33: 16–30. https://doi.org/10.2307/142564
Ros, J. (1993). Mexico’s Trade and Industrialisation Experience Since 1960: A Reconsideration of Past Policies and Assessment of Current Reforms. Kellogg Institute Working Paper No. 186.
Sabuhi, S. M., Piri, M. (2008). Consideration of the Effect of Exchange Rate Volatility on Agricultural Products Export Price, the Case Study of Iran's Saffron. IDOSI Publications.
Sauter, R., Awerbuch, S. (2002). Oil Price Volatility and Economic Activity: A Survey and Literature Review. Paris. IEA Research Paper.
Scherer, F.M. (1980). Industrial Market Structure and Economic Performance, Second Edition. Hougton Mifflin Company, Boston.
Schnabl, G. (2009). Exchange Rate Volatility and Growth in Emerging Europe and East Asia. Open Economic Review, 20: 565–587.
Schorderet and Yann. (2001). Revisiting Okun’s Law: an Hysteretic Perspective. University Of California at San Diego, Economics Working Paper Series.
Siegel, P.B., Alwang, J., Johnson, T.G. (1994). Toward An Improved Variance Measure of Regional Economic Instability. Review of Regional Studies, 24: 71–86.
Smith, S.M., Gibson, C.S. (1988). Industrial Diversification in Nonmetropolitan Counties and Its Effect on Economic Stability. West. Journal of Agricultural Economics, 13: 193–201. https://www.jstor.org/stable/40987981
Sorsa, P. (1999). Algeria-The Real Exchange Rate, Export Diversification, and Trade Protection. International Monetary Fund Working Paper 99/49.
Tang, Bo, and Carlos Bethencourt (2017). Asymmetric Unemployment-Output Tradeoff in The Eurozone. Journal of Policy Modeling, 39(3): 461 – 481. https://doi.org/10.1016/j.jpolmod.2017.01.003
Tang, T.C., and Fausten, D.K. (2006). Current and Capital Account Interdependence: An Empirical Test. Online. 〈Http://Www.Acrobatplanet.Com/Go/Currentandcapitalaccount.Pdf〉.
Tress, R.C. (1938). Unemployment and the Diversification of Industry. Manch. Sch. 9, 140–152.
Walsh, J.P., Yu, J. (2010). Determinants of Foreign Direct Investment: A Sectoral and Institutional Approach. IMF Working Paper WP/10/187.
Wang, J., Niu, X., Zhang, L., Liu, Z., & Wei, D. (2022). The influence of international oil prices on the exchange rates of oil exporting countries: Based on the hybrid copula function. Resources Policy, 77, 102734. https://doi.org/10.1016/j.resourpol.2022.102734
Wesseh Jr, P. K., & Lin, B. (2018). Exchange rate fluctuations, oil price shocks and economic growth in a small net-importing economy. Energy, 151, 402-407. https://doi.org/10.1016/j.energy.2018.03.054