TRADE BALANCE, EXCHANGE RATE MOVEMENTS AND ECONOMIC GROWTH IN NIGERIA: A DISAGGREGATED APPROACH

The influence of trade balance and exchange rate movement on economic growth in Nigeria, as well as the determinants of the exchange rate, is examined in this study for the period 1981 to 2020. The study follows the autoregressive distributed lag approach to estimate the four models specified in the study. In Model I, total trade is observed to have a positive and significant effect on economic growth, while the exchange rate exerts a negative and significant effect. A unit percent increase in total trade balance leads to a 0.0039% increase in economic growth, while a unit percent increase in exchange rate leads to a 0.0510% decrease in economic growth. In the second model, both oil trade balance and exchange rate exert a negative and significant effect on economic growth. A unit percent increase in oil trade balance and exchange rate leads to a 0.0113% and 0.0758% decrease in economic growth, respectively. In the third model, the non-oil trade balance exerts a negative and significant effect on economic growth, while the exchange rate exerts a negative but insignificant effect on economic growth. Finally, Model IV, which captures the determinants of the exchange rate in Nigeria, reveals that economic growth, external reserves, inflation, and total trade balance are the major drivers of the exchange rate in Nigeria since they exert a significant effect. It follows from the findings that stimulating domestic production to boost non-oil exports will help to ensure exchange rate stability that will promote growth within the Nigerian economy