AN ANALYSIS OF THE EFFECT OF EXCHANGE RATE DEPRECIATION ON BALANCE OF PAYMENT IN NIGERIA

Abstract

This paper analyses the effect of exchange rate depreciation on balance of payment in the Nigeria spinning the period 1981-2021. Autoregressive Distributed Lag Model of data analyses is used after conducting unit root test. ARDL bound result indicates a long term association among the macroeconomic models. Empirical evidence reveals that exchange rate depreciation had a positive and significant effect on balance of payment both in the long and short run. Moreover, the results revealed that depreciation of exchange rate improves balance of payment and that Marshall-Lerner (ML) condition subsists for Nigeria. The paper advocates that the Nigerian government should adopt import substitution strategy in order to discourage importation so as to promote local production as well as balance of payment, Nigerian government should also encourage growth of local industries that will satisfy the domestic demand and also compete in a global market, increase investment in agriculture and manufacturing sector as well as promote entrepreneurial skills so as to correct the deficit in the balance of payment accounts