Asymmetric cointegration between exchange rate and trade balance in Nigeria

Abstract

This paper empirically examines the long-run pass through of the official exchange rates into trade balance in Nigeria by means of threshold cointegration and asymmetric error correction modeling. The study provides evidence for non-linear cointegration between our variables of interest. The estimated asymmetric error correction models provide new evidence for slower transmission of exchange rate depreciations into the country's trade balance, which in turn appears to offer partial support for the Dutch disease hypothesis. This finding suggests that policy-makers cannot hope to use currency devaluation to improve the trade balance. It is recommended that policy-makers focus attention on diversification of the economy away from dependence on crude oil exports into productive manufacturing and non-oil exports, which will be vital in making the economy more competitive.

Effects of Bilateral Real Exchange Rate on Sino-Nigeria Trade: An ARDL Cointegration Approach

“…In it all, with the absolute value of the real bilateral exchange rate greater than one, one would envisage that depreciation of the real (Naira/Renminbi) exchange rate will tend to ameliorate the negative trade balance Nigeria has with China contrary to the idea of Jibrilla and Shehu (2015). In other words, a percentage increase in real exchange rate in this case will generate more than a percentage increase in Nigeria's export to China and also more than a percentage decrease her import from China.…”

“…This result was dependent on the outcome which shows that real appreciation of Yuan has decreasing and increasing long-run effects in three (3) and five (5) respectively, of the eight (8) China trading partners under consideration in their research. Jibrilla and Shehu (2015) argued Nigeria trade balance does not instantly affected by Nigeria's currency depreciation. If both exchange rate and its volatility could influence bilateral trade, there is no doubt it could play major roles in determining country's trade balance.…”

“…Though Jibrilla and Shehu (2015) found bidirectional causal relationship between changes in exchange rate and balance of trade, they think depreciation of naira does little to improve Nigeria trade balance. Most recent academic researches on Nigeria exchange rate regimes (Shehu 2010, Umoru and Oseme 2013, Igue and Ogunleye 2014, Jibrilla and Shehu 2015 must have contributed to the existing literature but their approaches could not be considered to be robust. Besides, the sharp drop of naira against dollar as envisage in Fig 1 represent an obvious uncertainty at this period which could cause adverse consequences in Nigeria's external businesses.…”

Public Revenue‐Expenditure Nexus in South Africa: Are there Asymmetries?

“…if the deficit was greater than its long-run trend, the policy response is expected to be more aggressive than if it was less than its trend. Second, due to the close connection between the budgetary process and the business cycle, through the automatic stabilizer, and the fact that the business cycle often displays asymmetric behaviour (see also a similar asymmetric argument in Jibrilla and Mohammed, 2015), the associated change in the budget could also be asymmetric. Third, the response of taxpayers to changes in the effective tax rate or tax base may lead to asymmetric differences in the budget.…”

Fiscal sustainability in the presence of structural breaks: Does overconfidence on resource exports hurt government’s ability to finance debt? Evidence from Nigeria

“…In fact, studies have documented that key macroeconomic variables tend to exhibit asymmetric adjustment through business cycles, especially when the closeness between the budgetary process and the business cycle is taken into consideration (see, e.g. Ewing, Payne, Thompson, & Al-Zoubi, 2006;Jibrilla & Mohammed, 2015).…”