Assessing the Effects of Exchange Rate Movements on Nigeria’s Import Sector

Abstract

This study investigates the impact of foreign exchange rate fluctuations on Nigeria’s import performance over the period 1981–2022. The primary objective was to examine both the short- and long-run effects of exchange rate movements on Nigeria’s imports. The study employed data on imports as the dependent variable, while industrial production, real effective exchange rate (REER), external reserves, and inflation rate served as independent variables. Data were sourced from the World Development Indicators (WDI) and International Financial Statistics (IFS). Descriptive statistics and the Autoregressive Distributed Lag (ARDL) model were utilized to assess short-run and long-run relationships, while Pairwise Granger Causality tests were conducted to determine the direction of causality. The results revealed that REER, external reserves, and inflation negatively and significantly influence Nigeria’s import levels, while industrial production also exhibited a negative and significant relationship. The study recommends that the Nigerian government implement strategic measures to stabilize the foreign exchange market, regulate online forex platforms, and attract foreign investment. Furthermore, policies aimed at promoting economic diversification and domestic production are crucial to reducing import dependence and conserving foreign exchange reserves.

Keywords: Exchange Rate, Imports, ARDL Model, Inflation, Nigeria