EXCHANGE RATE MISALIGNMENT AND BALANCE OF PAYMENT ADJUSTMENT IN NIGERIA

Abstract

This study analyses the relationship between exchange rate misalignment and balance of payments (BOP) mal-adjustment in Nigeria over the sample period of 1973 through to 2012 using the vector error correction econometric modelling technique. The most germane result of the study is the fact that exchange rate misalignment exhibited a positive impact on the Nigerian’s balance of payments position. In addition to the VECM estimates, the Granger pair-wise causality test results also indicated a unidirectional causality running from exchange rate misalignment to balance of payments adjustment in Nigeria at the 1% level. Indeed, the study found BOP effects of exchange rate appreciation for the Nigerian economy. The policy implication is simple; the Nigerian government should implement economic policies that could enhance the appreciation of the Naira-US$ exchange rate for possible favourable balance of payments effects.