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Authors
Gabriel A. Anidiobu, PhD,1 Felix N. Ezeji, PhD2 & Aloysius E. Agada, PhD3
1Department of Banking and Finance
Enugu State University of Science and Technology, Agbani, Nigeria
2Research & Planning Department
Nigerian Maritime Administration & Safety Agency, Lagos, Nigeria
3Department of Business Administration
Cosmopolitan International Business School, Abuja, Nigeria
Corresponding Author: +2347036610673; [email protected]
ABSTRACT
Research Purpose: This research examined whether exchange rate depreciation measured by real effective exchange rate (REER) functions as a driver of economic performance, measured by GDP growth rate (GDPGR) and gross fixed capital formation (GFCF).
Design/Methodology/Approach: The study employed an ex-post facto design, utilizing annual time series data (1990–2024) from Central Bank of Nigeria (CBN), National Bureau of Statistics (NBS) and World Bank. It further adapted Adewole’s (2023) Vector Error Correction Model (VECM) framework (1970–2022), which investigated short and long-run dynamics among exchange rate, foreign direct investment, inflation, trade balance and Nigeria’s GDP as basis of our methodology.
Finding: REER had a positive but non-significant impact on GDP growth (coefficient = 0.07; p = 0.12 > 0.05; REER had a positive but non-significant impact on GFCF (coefficient = 0.12, p = 0.27 > 0.05), and Structural breaks had a negative but non-significant impacts on REER–GDP growth relationship (dummy coefficients = –0.11 (p = 0.32 > 0.05); –0.08 (p = 0.27 > 0.05), and –0.15 (p = 0.29 > 0.05)).
Implications: Results indicate that REER exerted positive but non-significant impacts on GDP growth and GFCF, suggesting limited evidence of direct macroeconomic influence. Moreover, structural breaks weakened REER–GDP growth relationship, though these impacts were also non-significant. Overall, findings imply that exchange rate movements and structural shocks did not materially drive Nigeria’s growth trajectory during the study period, underscoring the predominance of other macroeconomic factors.
Originality/Value Added: Study added value by demonstrating that Nigeria’s growth prospects depended on credible exchange rate stabilization and resilience to external shocks, while its integration of the Mundell–Fleming Model provided a novel framework for explaining how naira depreciation, capital flows, inflation and oil price volatility jointly influenced GDP growth.
Keywords: Exchange Rate Depreciation, Economic Growth Performance, Nigeria’s Naira, Macroeconomic Stability and Empirical Analysis