The impact of foreign exchange policies on import substitution in Nigeria: A study of the Central Bank of Nigeria (CBN) (2000–2020).
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Background of the Study :
Foreign exchange policies are central to shaping the economic structure of nations, especially in countries striving to reduce import dependency. In Nigeria, the Central Bank of Nigeria (CBN) has introduced a series of foreign exchange policy measures over the period 2000–2020, aimed at promoting import substitution by encouraging domestic production (Eze, 2023). These policies are designed to stabilize the currency, control exchange rate fluctuations, and provide incentives for local manufacturing. As the country faces persistent trade deficits and a heavy reliance on imported goods, import substitution emerges as a strategic objective to boost industrialization and self-sufficiency (Ike, 2024). This study investigates the extent to which the CBN’s foreign exchange policies have influenced the shift from imported products to locally produced alternatives. It examines policy instruments such as multiple exchange rate regimes, foreign exchange controls, and intervention measures, analyzing their effectiveness in altering consumer behavior and stimulating domestic production. The discussion incorporates both quantitative data and qualitative insights to reveal the dynamic interplay between policy implementation and market responses. The findings are expected to provide a nuanced understanding of how foreign exchange management can support industrial development and economic diversification (Obi, 2025).
Statement of the Problem
Despite the intended benefits of CBN’s foreign exchange policies, Nigeria continues to struggle with significant import dependency. Inconsistent exchange rate mechanisms, regulatory bottlenecks, and market inefficiencies have impeded the achievement of import substitution targets (Eze, 2023). The policies have not uniformly translated into increased domestic production, as external market pressures and internal operational challenges persist. This study addresses the problem of understanding why the expected transformation in trade patterns has not been fully realized. It aims to investigate the specific mechanisms by which foreign exchange policies influence import substitution, and to identify the obstacles that undermine their effectiveness (Ike, 2024).
Objectives of the Study:
- To evaluate the impact of CBN’s foreign exchange policies on import substitution.
- To assess the effectiveness of these policies in promoting domestic production.
- To identify challenges and propose improvements for policy optimization.
Research Questions:
- How have CBN’s foreign exchange policies influenced import substitution?
- What factors hinder the successful promotion of domestic production?
- How can policy measures be reformed to better facilitate import substitution?
Research Hypotheses:
- H1: Foreign exchange policies significantly promote import substitution.
- H2: Inefficiencies in policy implementation negatively affect domestic production.
- H3: Strengthened regulatory frameworks enhance the effectiveness of foreign exchange policies.
Significance of the Study
This study is significant as it critically examines the role of foreign exchange policies in promoting import substitution in Nigeria. By analyzing the CBN’s initiatives, it provides valuable insights into the successes and limitations of current policy measures. The findings will assist policymakers and industry stakeholders in formulating reforms to reduce import dependency and boost domestic production, thereby contributing to sustainable economic development (Obi, 2025).
Scope and Limitations of the Study:
This study is limited to the analysis of CBN’s foreign exchange policies and their impact on import substitution, focusing solely on policy instruments and market responses.
Definitions of Terms:
– Foreign Exchange Policies: Strategies implemented by the central bank to manage currency exchange and stabilize the economy.
– Import Substitution: An economic strategy aimed at replacing foreign imports with domestic production.
– Central Bank of Nigeria (CBN): Nigeria’s primary monetary authority responsible for regulating the economy.
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