EXCHANGE RATE, MONEY SUPPLY AND THE GROWTH OF NIGERIA ECONOMY ABSTRACT This study is motivated by a desire to examine the auditor independence and firm performance. In light of the empirical review and other discussions, a number of questions arose as to whether there is a significant relationship between exchange rate output, money supply and economic development. Using the Ordinary Least Square (OLS) regression technique with the aid of a computer software E-view 7.0, the empirical findings revealed among other things that, there is a significant relationship between Gross Domestic Product and Money Supply. We recommend among other things that, policy make should endeavour to pay close attention to the behaviour of gross domestic product money supply with a view to improving the exchange rate position of the naira with respect to other currencies. TABLE OF CONTENTS CHAPTER ONE: INTRODUCTION Background of the Study Statement of the Research Problem Objectives of the Study Research Hypotheses Scope of the Study Significance of the Study Limitations of the Study CHAPTER TWO: LITERATURE REVIEW Introduction Developments in Exchange Rate Policy in Nigeria Nigeria’s Foreign Exchange Regimes Theoretical Review on Exchange Rate Exchange Rate Management in Nigeria Theoretical Framework 2.5 Review of Empirical Studies Money Supply and Economic Development Exchange Rate and Economic Development CHAPTER THREE: RESEARCH METHODOLOGY Introduction The Research Design Sources of Data Collection Model Specification Method of Data Analysis CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS 4.1 Introduction 4.2 Presentation and Analysis of Results Test of Hypotheses CHAPTER FIVE: SUMMARY, RECOMMENDATIONS AND CONCLUSION Introduction Summary of Findings Recommendations Conclusion Bibliography Appendix CHAPTER ONE INTRODUCTION BACKGROUND TO THE STUDY Exchange rate variation has been singled out as one of the endogenous factors that do affect the economic performance of a nation. According to Cottani, Cavallo & Khan (1990), the dismal economic performance in developed and developing countries can be linked to real exchange rate behaviour. It can therefore be argued that a sound exchange rate policy and an appropriate exchange rate are crucial conditions for improving the economic performance of a country. Yaqub (2010), observed that, in the last few decades, the foreign exchange rate management in Nigeria has undergone tremendous changes especially after the adoption of the Structural Adjustment Programme (SAP), sponsored by the International Monetary Fund (IMF) and the World Bank. The Nigerian currency has depreciated several times and has appreciated on a number of occasions in response to some market fundamentals, so as to attain a realistic exchange rate that would facilitate improved macroeconomic performance and diversify the productive base of the economy. However, the effect of the changes in exchange rate in Nigeria has not produced the desired effects. The economy continued to depend on a single commodity (oil) for greater percentage of its foreign exchange earnings while the output of agriculture which was the mainstay of the economy prior to the discovery of oil, continues to dwindle. Manufacturing sector’s output declined for a greater proportion of the period. The issue of exchange rate has been prevalent in the literature, real exchange rate is said to be a very important relative price in the economy. This is because, changes in the real exchange rate influences foreign trade flows, the balance of payment, the level and structure of production and consumption and therefore employment, the allocation of resources in the economy and domestic prices (Ebele and Anuli (2007). Many economics have shown the important role played by exchange rate in the performance of the external sector of the economy. Some of these studies include: Obadan (1996), Martine (1993); Anifowse (1983); and Grassman (1973). They illustrated that under a pegged exchange rate system; expansionary fiscal and monetary policy can be a cause of persistent real over valuation of the currency. They concluded that, exchange rate is a major determinant of economic performance. Conversely, Itsede (2003) pointed out that, severe macroeconomic disequilibrium and balance of payment crises in the developing countries are often cited as the direct consequence of exchange rate misalignment. Odozi (1990) stated that, despite the role exchange rate play in the economy, the choice of exchange rate regime is however, dependent on several other factors. These factors include: the objectives pursued by the policy makers, the sources of the shocks hitting the economy and the structural characteristics of the economy. He pointed that, whatever the objectives that determine the exchange rate regime, the authorities are presumed to adjust their domestic macroeconomic policies (especially, monetary and fiscal policies) to fit the chosen exchange rate policy. The role of the exchange rates in the Nigerian economy has always been much in contention as result of its volatility and consequent impact on various sectors of the economy, especially, on the daily living profile of Nigerians. Much as inflation, especially, money supply induced price increases has affected the index in Nigeria, it has equally been affected by the continuous depreciation of the Naira in the process of exchange to goods which and has played a major role financial landscape of the country (Ismail, 2009). This study is motivated by a desire to examine the impact of exchange rate output in the Nigeria economy. STATEMENT OF THE RESEARCH PROBLEM In spite of the numerous policies and measures adopted to promote economic growth in Nigeria, the performance of the economy has been unsatisfactory. The GDP growth in Nigeria is still very low. The problem of foreign exchange constraint has to be looked into. Nigeria is always confronted with the problem of foreign exchange constraints because of its induction into the world markets. This has not contributed much to the development of the Nigeria economy because the exportation sectors of the economy. These exports are mainly primary products and their prices were and are still instable due to cyclical instability and balance of payment difficulties. Foreign exchange constraints have led to Nigeria relying on grants and aids from developed countries, but the money is not forthcoming because of the problem of corruption and misappropriation of funds inherent in Nigeria (Obadan 2004). Exchange rate output is a major bane to economic growth in Nigeria. Exchange rate fluctuation has become an issue of worry since 1980’s till date inappropriate exchange rate policy subsidized imports, panelized exports and inflow of foreign exchange provides impetus for a flourishing parallel market for foreign exchange and enforced import, panelized exports and inflow of foreign exchange and enforced import control measures, and defaulted level of tariff protection in domestic economy (Obadan, 2007). Against this backdrop, the following research questions are raised: Is there significant relationship between exchange rate output and economic development? Is there significant relationship between money supply and exchange rate? Is there significant relationship between exchange rate, money supply and economic development? OBJECTIVE OF THE STUDY The research main objective is to investigate the impact of exchange rate output in the Nigeria economy. The specific objectives are: To find out if there is significant relationship between exchange rate output and economic development. To verify if there is significant relationship between money supply and exchange rate. To examine if there is significant relationship between exchange rate, money supply and economic development. RESEARCH HYPOTHESIS The following hypotheses have been formulated to serve as a base for this research; Hypothesis I Ho: There is no significant relationship between exchange rate and economic development. Hi: There is a significant relationship between exchange rate and economic development. Hypothesis II Ho: There is no significant relationship between money supply and exchange rate. H1: There is a significant relationship between money supply and exchange rate. Hypothesis III Ho: There is no significant relationship between interest rate and economic development. H1: There is a significant relationship between interest rate and economic development. SCOPE OF THE STUDY In the light of the stated objectives, the focus of this study is on the impact of exchange rate output in the Nigeria economy. As such, this study is restricted to the Nigeria economy. Temporally or in term of time series, a period of thirty years is used i.e. 1980 to 2011 using some macroeconomic variables as means of assessing the impact of exchange rate output in the Nigeria economy. SIGNIFICANCE OF THE STUDY This study will be important and beneficial to stakeholders on the importance of exchange rate and foreign direct investment. The study will assist the government and regulatory agencies on the proper conduct of exchange rate and foreign direct investment. The study will help to restore the lost confidence of the public as regard the exchange rate and foreign direct investment in Nigeria. The study will assist both academic and other future researchers in this similar subject matter will find it a useful source of learning and research. LIMITATIONS OF THE STUDY In the course of conducting this research work, the researcher encountered some constraints. These constraints are: Inadequate Study Materials: Research materials were of limited supply due to the practicality of the study. Where they were available; the cost involved in sourcing for them was very expensive. Finance Cost: The cost involved in sourcing for the available materials and other necessary information was very high within the reach of the student researcher.
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