Foreign Trade-Foreign Exchange Nexus in Nigeria: A Vector Error Correction Modelling Approach

Authors

  • Olushina Olawale Awe ObafemiAwolowo University, Nigeria
  • Damola M. Akinlana University of Ibadan, Nigeria
  • Sherifat Omolola Adesunkanmi Obafemi Awolowo University, Nigeria

DOI:

https://doi.org/10.21512/bbr.v7i1.1427

Keywords:

foreign trade, foreign exchange, vector error correction model

Abstract

This study investigates trade foreign exchange nexus in Nigeria. This study is also done with a view to detecting the kind of relationship that exists between the two and also to investigate their co-integration. Annual time series data for the period 1996 – 2010 was used for the study. The Vector Correction Model (VECM) approach was employed to determine both the short and long run relationships. Results showed that the series becomes stationary after second difference. The co – integration test reveals five co – integrating vectors in the model, implying that the variables have the same stochastic drift. The study concludes that a long-term relationship exists between foreign trade and exchange rates implying that foreign trade flows have a strong link with exchange rates in Nigeria.

Author Biographies

Olushina Olawale Awe, ObafemiAwolowo University, Nigeria

Department of Mathematics

Damola M. Akinlana, University of Ibadan, Nigeria

Department of Statistics

Sherifat Omolola Adesunkanmi, Obafemi Awolowo University, Nigeria

Department of Management and Accounting

References

Afaha, J.S., Oluwatobi, A.M. (2012). Foreign Trade and Economic Growth: Evidence from Nigeria. Arabian Journal of Business and Management Review, 2(1).

Azeez, B.A., Dada, S.O., and Aluko, O.A. (2014). Effect of International Trade in Nigerian Economic Growth: The 21st Century Experience. International Journal of Economics, Commerce and Management, II(10).

Enders, W., Lee, J. (2004). Testing for a unit root with a nonlinear Fourier function. Econometric Society 2004 Far Eastern Meetings, (457).

Engle, R.F., Granger, C.W.J. (1987). Co-integration and Error Correction Representation. Econometrica, 55(2), 251-276.

Granger, C.W.J., Newbold, P. (1974). Spurious Regression in Econometrics. Journal of Econometrics, 2, 111-120.

Granger, C.W.J. (1980). Testing for causality - A Personal Viewpoint. Journal of Economic Dynamic and Control, 2(4), 329-352.

Gujarati, D.N., Sangeetha (2007). Basic Econometrics. New Dehli: Tata McGraw-Hill.

Gunes, S. (2013). The Effect of Exchange Rates on the International Trade in Turkey: European Journal of Economic and Political Studies, 6(1), 85-95.

Isard, P. (2007). Equilibrium Exchange Rates: Assessment Methodologies. IMF Working Paper, WP/07/296.

Johansen, S., Juselius, K. (1990). Maximum Likelihood Estimation and Inference on Cointegration–with Applications to the Demand for Money. Oxford Bulletin of Economics and Statistics, 52 (2), 169-210.

Obiora-Ilouno, H.O., Mbegbu, J.I. (2013). A Multivariate Linear Regression on the Effect of Foreign Trade on Foreign Exchange Rates of Naira Using Bootstrap Approach. Studies in Mathematical Sciences, 6 (2),18-27.

Onafowora, O., Owoye, O. (2008). Exchange Rate Volatility and Export Growth in Nigeria. Applied Economics, Taylor and Francis Journals, 40(12), 1547-1556.

Osisanwo, B.G. Okuneye, B.A. (2015). Entrepreneurs, Exports and Economic Growth Nexus: The Nigerian Experience (1980-2013). American Journal of Economics, Finance and Management, 3, 129-135.

Downloads

Published

2016-05-31
Abstract 573  .
PDF downloaded 392  .