An Analysis of the Effect of Exchange Rate Regimes on Nigeria’s International Trade
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Background of the Study
Exchange rate regimes are central to a country’s trade performance and economic interactions with the global market. In Nigeria, the exchange rate policy—ranging from fixed to managed float systems—has undergone several transformations aimed at balancing external competitiveness with domestic economic stability. The chosen exchange rate regime directly influences export competitiveness, import costs, and overall trade balance. In recent years, policy shifts have sought to align the official exchange rate more closely with market realities, thereby fostering a more predictable environment for international trade (Okoro, 2023).
Empirical evidence from various economies suggests that flexible exchange rate regimes tend to accommodate external shocks better and allow for automatic stabilization, while fixed regimes may provide short-term stability at the cost of long-term inefficiencies. In Nigeria’s case, the interplay between the official and parallel market exchange rates has often created challenges for exporters and importers alike. The dual exchange rate environment has led to uncertainties in pricing and has adversely affected international competitiveness (Adebayo, 2024).
This study analyzes the effect of different exchange rate regimes on Nigeria’s international trade by assessing how shifts in exchange rate policies influence trade volumes, export competitiveness, and balance of payments. It also considers the role of external factors such as global market fluctuations and commodity price changes, which interact with domestic exchange rate policies. Through a combination of quantitative analysis and qualitative policy evaluation, the research aims to offer a comprehensive assessment of the trade-offs inherent in different exchange rate regimes and provide recommendations for optimizing Nigeria’s trade policy (Chukwu, 2023).
Statement of the Problem
Nigeria’s international trade performance has been hindered by inconsistencies in its exchange rate policies. A major problem is the persistent gap between the official exchange rate and the rates observed in the parallel market, which creates uncertainty for businesses engaged in international trade. This misalignment adversely affects pricing strategies, leading to reduced export competitiveness and increased costs for importers (Okoro, 2023).
Furthermore, the frequent adjustments in exchange rate policy have led to volatility that discourages long-term trade commitments and investment. The resulting uncertainty undermines the confidence of both domestic and foreign traders, thereby limiting the potential for sustained growth in export sectors. Additionally, the current regime does not adequately address the structural challenges of the economy, such as overreliance on oil exports and inadequate diversification, which further weakens Nigeria’s international trade position (Adebayo, 2024).
The study seeks to identify the key factors contributing to exchange rate misalignment and assess the impact of different regimes on trade performance. It aims to analyze whether the current managed float system effectively supports Nigeria’s international trade objectives or if a shift in policy approach is needed. By isolating the impact of exchange rate policies from other influencing factors, the research will provide insights into the necessary policy adjustments required to enhance Nigeria’s trade competitiveness and overall economic performance (Chukwu, 2023).
Objectives of the Study
1. To analyze the impact of exchange rate regimes on Nigeria’s international trade performance.
2. To identify the factors contributing to exchange rate misalignment in Nigeria.
3. To propose policy recommendations to improve trade competitiveness through exchange rate stabilization.
Research Questions
1. How do different exchange rate regimes affect Nigeria’s export and import performance?
2. What are the main causes of exchange rate misalignment in Nigeria?
3. Which policy measures can stabilize the exchange rate and enhance international trade?
Research Hypotheses
1. Flexible exchange rate regimes are associated with improved trade competitiveness.
2. Exchange rate misalignment negatively affects Nigeria’s international trade.
3. Policy interventions that reduce exchange rate volatility enhance export performance.
Scope and Limitations of the Study
This study focuses on the impact of exchange rate regimes on Nigeria’s international trade using trade and exchange rate data. Limitations include data discrepancies and the difficulty of isolating exchange rate effects from other global economic factors.
Definitions of Terms
Exchange Rate Regime: The method by which a country manages its currency relative to other currencies.
International Trade: The exchange of goods and services between countries.
Exchange Rate Misalignment: A deviation between the official and market-determined exchange rates.
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