Bounds Testing of Exchange Rate Effect on Economic Growth

David IJ, Bamigbala OA, Adubisi DO, Danjuma I, Agog NS and Ikwuoche PO

Published on: 2023-01-23

Abstract

The anticipation of any country is to have high output strength but in the presence of a high exchange rate (ER) such belief is unfeasible because a high ER is a sign of a rigid economic system. In this research, ER effect on Nigerian economic growth (EG) is studied from 1986 to 2018 using an Autoregressive Distributed Lag (ARDL) Bounds test approach to determine the co-integration existence between ER and EG and determine the long-run movement through the approach of Error Correction Model (ECM). The results obtained showed that an ARDL (2, 0) model was the best-fitted model for the sampled data based on the smallest Akaike’s Information Criterion (AIC) value obtained. Also, it was found that ER has a positive effect that is not significant to Nigeria EG at the long and short-run dynamics with an unstable parameter estimates as portrayed by the CUSUM square chart.