The impact of Exchange Rate Variability and Volatility on Economic Growth: Evidence from Nigeria

Abstract

This paper focuses on investigating the impact of exchange rate variability and volatility on Nigeria’s economic growth for a period of thirty-three years while also looking at the causal impact of interest rate and inflation on real gross domestic product using values from year 1990 up to 2023. The importance of this study is premised on the fact that Nigeria being an import dependent nation of a sort, an understanding of the relationship and impact of the aforementioned variables is needed for proper macroeconomic management. Drawing from a background of the understanding of the investment-savings and liquidity-money model, the weighted least square analytic method was used. Results from the study showed that exchange rate exhibits a direct and positive relationship with the growth rate of real gross domestic product but the impact is low. Inflation rate also showed a negative relationship with the growth rate of real gross domestic product, interest rate is inversely related to the growth of real gross domestic product. This makes it imperative as recommended that import substitution should be embarked upon by deliberately incentivising local producers and investors through concessionary interest rates.

Keywords: Exchange Rate Variability, Exchange Rate Volatility, Economic Growth