The analysis of Pedroni Co-integration and VECM on export performance and exchange rate fluctuation

Abstract

The study investigates the relationship between exchange rate fluctuation and Nigerian export performance between 1980-2015 using Pedroni Cointegration Approach and Vector Error Correction Model (VECM).The found long run relationship between exchange rate and Nigerian export performance and also export rate greatly affects balance of trade and with the speed of adjustment toward long run equilibrium is -0.384858 which is significant at 0.01%. This indicates long run causality between exchange rate and export in Nigeria. Based on the findings, the study suggests that Nigeria should depreciate naira as a reduction in the exchange rate will reduce export prices, and, assuming demand is elastic, export revenue will increase.