Supply Response, Exchange Rate and Domestic Price in Nigeria

Abstract

The purpose of this paper is to empirically investigate the impact of exchange rate and domestic price on export trade in Nigeria. Firstly, based on the literature review and findings of the study in the area, the paper aligned itself within the premise of the traditionalist view which concludes that non-oil export trade in Nigeria is predicated by currency depreciation via lower export prices. Secondly, the introduction of domestic prices, alongside naira rate of exchange as major determinants of non-oil exports in Nigeria, has the implication of showing that currency devaluation could be used to improve the balance of payment position of the country. We therefore recommend policy measures from the monetary authorities in the country that would stabilize the foreign exchange market and the exchange rate. Caution on the part of the government is also recommended when adopting trade policies to ensure Nigeria does not end up with unfavorable terms of trade and balance of payments with trading partner countries.