Effect of exchange rate volatility on Nigerian economic growth

Abstract

Purpose: The research work investigates the effect of exchange rate volatility on economic growth of Nigeria. Methodology: The study utilizes secondary source of data that covers twenty-six (26) years, from the year 2000 to 2025. These periods represent more than two decades of sustained constitutional democratic governance in Nigeria, characterized by the uninterrupted operation of democratic institutions and civilian administration exposing the economy to persistent currency fluctuations and external and domestic economic shocks. The research work adopts robust time series econometric regression technique for data analysis. Results and conclusions: The results of the research work revealed that exchange rate volatility has negative effect on Nigerian economic growth. This indicates that one unit increase in the exchange rate, Nigerian Gross Domestic Product will decrease at a determinable rate. The study also reveals that population growth rate and public expenditure have positive effect on the Nigerian economic growth but trade openness has a negative effect on the Nigerian economic growth but is statistically insignificant. In conclusion, exchange rate volatility has significant effect on the Nigerian economic growth. Implication of findings: This research work highlights the suitability of exchange rate regime on the progress of national economy. An unstable exchange rate regime can have adverse effects on economic performance by increasing the cost of imported raw materials and discouraging cross-border trade and investment. In contrast, exchange rate stability can help the government manage external financial obligations, reduce the cost of imports, improve the balance of trade, and strengthen the economy’s capacity to absorb and adjust to external shocks.