Bilateral Real Exchange Rate Volatility and Trade: The Nigerian Case

Real exchange rate volatility can inhibit or enhance trade. The volatility of Nigerian currency concerning Yuan, Yen, Pounds, and the US dollar exists but is not homogenous. This situation will affect trade flows between Nigeria and China, Japan, the UK, and the US. Therefore, this study unravels the nature and possible result of real exchange rate volatility on trade at the bilateral level from ۲۰۰۸:M۱ to ۲۰۱۹:M۳. Results obtained from the ARDL model in the context of risk aversion theory are as follows: (۱) In the short run, real exchange rate volatility differs across country partners but more persistent in the case of Nigeria-UK trade; (۲) in the long run, naira-dollar exchange rate shows detrimental effect on exports to the US, albeit insignificant; (۳) real exchange rate volatility is trade enhancing with Japan, inhibiting with the UK and indifference with China and US. Following these results, issues surrounding real exchange rate volatility and trade must be better studied at the bilateral level to provide easy and implementable policy recommendations. Going by the results, it is recommended that trade with Japan should be strengthened. The monetary authorities should also consider Yen and Yuan as part of foreign currencies for international transactions. More hedging instruments should be encouraged to absorb volatility, particularly in the case of Nigeria-UK trade. The potential traders will possibly do well by looking inward instead of facing exchange rate risk in the UK.

کلیدواژه ها:

Autoregressive Distributed Lag ، Real Exchange Rate ، trade