INVESTIGATING EXTERNAL DEBT AND EXCHANGE RATE FLUCTUATIONS IN NIGERIA: ANY DIFFERENCE WITH ARDL MODEL?
DOI:
https://doi.org/10.2478/subboec-2020-0015Keywords:
Exchange Rate, Fluctuations, External Debt, ARDL, Nigeria.Abstract
One of the contending issues in Nigeria in the recent time is external debt and exchange rate fluctuations. In view of the above, this study examined the relationship between external debt and exchange rate fluctuations in Nigeria over the period of 1981 to 2018. Consequently, the study employed Autoregressive Distribution Lag Model to address the objective of the study. The major findings that originated in this paper are as follows: external debt, debt service payment and foreign reserve have a significant positive impact on exchange rate fluctuations in the short run in Nigeria. Furthermore, based on these findings, recommendations are made for the policy makers that external debt as a means of financing budget deficit should be minimized if not totally discouraged in Nigeria because its servicing in particular and repayment put pressure on foreign exchange market in the short run and thereby leads to exchange rate fluctuations in terms of depreciation of naira in the country. Also, country’s foreign reserve should be strengthened through the implementation of aggressive export promotion policy in Nigeria.
JEL classification: F3, F31
References
Aderemi T.A., Ogunleye G.A., Abalaba B.P., Owolabi, O.O. (2020) Exchange Rate Volatility and Trade Balance in Nigeria: Bound Test and ARDL Approach, Euro Economica, 39(1), 7-16
Aderemi, T.A. (2019) Exchange Rate Volatility and Foreign Capital Inflows in Nigeria (1990-2016), Cointegration, DOLS and Granger Causality Approach, Management Studies and Economic Systems, 4(2), 161-170
Aderemi T. A., Akinbode S. O., Omogboye M.A., Fagbola L. O. (2019) Exchange Rate Volatility and Foreign Capital Inflows in Nigeria: A Vector Error Correction Model Approach, Acta Universitatis Danubius. Œconomica, 15(5), 34-43
Akpan, P.L. (2008) Foreign exchange market and economic growth in an emerging petroleum based economy: Evidence from Nigeria (1970-2003), African Economic and Business Review, 6 (2), 46-58.
Adepeju A. A., Salau A. S., Obayelu, A. E. (2007) the effects of External Debt Management on Sustainable Economic Growth and Development: Lessons from Nigeria, Munich Personal Respective (MPRA) Paper No.2147
Alam N., Taib F. (2013) An Investigation of the Relationship of External Public Debt with Budget Deficit, Current Account Deficit and Exchange Rate Depreciation in Debt Trap and Non-Debt Trap Countries, European Scientific Journal, 9 (22), 23-31
Aliyu, S.R.U. (2011) Impact of oil price shock and exchange rate volatility on economic growth Nigeria: An empirical investigation, Research Journal of International Studies
Aluko F., Arowolo D. (2010) Foreign Aid, the Third World’s Debt Crisis and the Implication for Economic Development: The Nigeria Experience, African Journal of Political Science and International Relations, 4(4), 120-127
Asher O.J. (2012) The Impact of Exchange rate Fluctuation on the Nigeria Economic Growth (1980 – 2010). Unpublished B.sc Thesis of Caritas University Emene, Enugu State, Nigeria
Ayadi, F. S., Ayadi F. O. (2008) the impact of external debt in economic growth: A comparative study of Nigeria and South Africa, Journal of Sustainable Development in Africa, 10 (3), 234-264.
Azeez B.A.; Kolapo F.T., Ajayi L.B. (2012) Effect of Exchange rate Volatility on Macroeconomic Performance in Nigeria, Interdisciplinary Journal of Contemporary Research in Business. 4 (1), 149-155
Blessy A., Lakshmi K. (2020) Original Sin, Currency Depreciation and External Debt Burden: Evidence from India, International Journal of Economics and Financial Issues, 10(3), 58-68
Bunescu L. (2014) The Impact of External Debt on Exchange Rate Variation in Romania, Economics and Sociology, 7(3), 104-115
Calvo G.A., Reinhart C. M. (2002) Fear of floating, Quarterly Journal of Economics. 117 (2), 379-408
Carrera C.M., Vergara, R. (2012) Fiscal sustainability: The impact of real exchange rate shocks on debt valuation, interest rates and GDP growth, World Development, 40(9), 1762-1783
CBN (2012) Annual Statistical Bulletin.
David U., Ameh A. 2010. The Effect of exchange rate fluctuations on Nigeria manufacturing sector, African Journal of Business Management, 4 (14), 2994-2998
Devereux M.B., Lane P.R., Xu J. (2006) Exchange rates and monetary policy in emerging market economies, The Economic Journal, 116(511), 478-506.
Dickey, D.A., Fuller, W.A. (1979) Distribution of the Estimators for Autoregressive Time Series with a Unit Root, Journal of the American Statistical Association, 74, 427–431
Fagbola L. O., Sokunbi, G. M., Aderemi T. A., Adebayo, A. G. (2020) External Debt and Economic Growth in Nigeria: An Implication for Debt Overhang Theory, Journal of Economics, Law and Politics, 7(2), 29-39
Hameed A., Ashraf H., Claudlary M. A. (2008) External Debt and its Impact on Economic and Business Growth in Pakistan, International Research Journal of Finance and Economics Issue 20
Ijeoma N.B. (2013) an Empirical Analysis of the Impact of Debt on the Nigerian Economy, International Journal of Arts and Humanities, 2 (7), 165-191
Jean-Claude Kouladoum (2018) External debts and real exchange rates in developing countries: evidence from Chad. Online at https://mpra.ub.uni-muenchen.de/88440/ MPRA Paper No. 88440, posted 19 August 2018 02:32 UTC
Hargreaves, D., Watson, E. (2011) sudden stops, external debt and the exchange rate, Reserve bank of New Zealand: Bulletin, 74(4), 17-27
Karmel P. H., Polasek M, (1980). Applied statistics for economists. Pitman Publishing
Krugman, P. (1989) Market Based Debt reduction Schemes. NBER Working Paper No. 16827, February 2011
Obansa S.A.J., Okoroafor O.K.D., Aluko O.O., Millicent E. (2013) Perceived relationship between exchange rate, interest rate and economic growth in Nigeria: 1970-2010, American Journal of Humanities and Social Sciences, 1 (3), 116-124
Ogege S. A., Ekpudu J.E. (2010) The Effect of Debt Burden on the Nigerian Economy, Journal of Research in National Development, 8 (2), 13-21
Palić I., Banić F., Matić L. (2018) The analysis of the impact of depreciation on external debt in long run: Evidence From Croatia, Interdisciplinary Description of Complex Systems, 16(1), 186-193.
Patrawimolporn P. (2007) Effect of Exchange Rate on Debt, Debt Services and Public Debt Management in Thailand in the 1980s, Asian Economic Journal, 5,3
Pesaran M. H., Shin Y., Smith R. J. (2001) Bounds testing approaches to the analysis of level relationships, Journal of Applied Econometrics, 16, 289-326
Pesaran M., Pesaran B. (1997) Microfit 4.0 (windows version). New York: Oxford University Press Inc
Phillips P. C., Perron P. (1988) Testing for a unit root in time series regression, Biometrika, 75, 335-346
PNUD (2011) Rapport mondial sur le développement humain.
Saheed Z. S., Sani I. E. Idakwoji B. O. (2015) Impact of Public External Debt on Exchange Rate in Nigeria, European Journal of Business and Management, 7(21), 55-59
Semenitari I. (2005) The Road to Debt Relief. Tell Magazine, 29, July 19, 38
Sene B. (2004) The Impact of Debt Overhang on Equilibrium Real Exchange Rate in Developing Countries: A Theoretical Model. EURISCO Working Paper, No. 04-17
Siok K. S., Cheau P. O., Mohd T.I. (2012) Investigating the Relationship between Exchange Rate and Inflation Targeting, Applied Mathematical Sciences, 6(32),1571-1583
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2020 Studia Universitatis Babeș-Bolyai Oeconomica
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
