Exchange Rate Volatility and Productivity in Nigeria: An Empirical Analysis

Abstract

The volatile movement in Nigeria’s exchange rate constitutes a severe headwind to the economic activity in the country and the eventual performance of productivity and economic growth. Therefore, this study sought to investigate the impact of exchange rate volatility on productivity in Nigeria. Due to the seemingly mixed order of integration in the variables, the Johansen and Bound cointegration tests were used to establish that there are long-run relationships between the variables. Following the cointegration tests, the analysis of the study was based on the Autoregressive Distributed Lag (ARDL) Model. The findings from the study revealed that exchange rate volatility negatively impacts productivity in Nigeria in the short run and in the long run. However, the financial development in Nigeria negatively impacts productivity, reflecting the underdevelopment of the financial system to transmit its function to the real sector. Other variables considered emphasise persistence in the way they impact productivity. The article also emphasised the need for the harmonisation of foreign exchange management guidelines and clarity and transparency in the management of the foreign exchange market.