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Determinants of exchange rate in Nigeria, 1970-2007: an empirical analysis.

Abstract

The paper investigates the determinants of exchange rate in Nigeria, by employing co-integration and error-correction techniques. The results indicate that improvement in productivity, investment-GDP ratio, and high inflation leads to exchange rate appreciation. On the other hand, higher degree of openness, increases in foreign exchange reserves, and interest rate differentials result in exchange rate depreciation. Overall, the findings confirm the Balassa-Samuelson hypothesis, which states that high productivity differentials lead to exchange rate appreciation. Thus, we propose policies that would encourage and facilitate improvement in productivity in all sectors of the economy, raise investment and foreign exchange reserves, reduce inflation, stabilize and further liberalize interest rate, and increase the openness of the economy.

Keywords: exchange rate, stationarity test, co-integration, error correction, Nigeria

I. INTRODUCTION

The role of exchange rate and its effects on macroeconomic performance has continued to generate interest among economists. Many economists argue that exchange rate stability facilitates production activities and economic growth. They are also of the view that misalignment in real exchange rate could distort production activities and consequently hinders exports growth and generate macroeconomic instability (Mamta Chowdhury, 1999). Exchange rate policy guides investors on the best way they can strike a balance between their trading partners, and investing at home or abroad (Balogun, 2007). Mordi (2006) argued that the exchange rate movements have effects on inflation, prices incentives, fiscal viability, competitiveness of exports, efficiency in resource allocation, international confidence and balance of payments equilibrium.

Exchange rate refers to the rate at which one currency exchanges for another (Jhingan, 2003). Exchange rate is said to depreciate if the amount of domestic currency require to buy a foreign currency increases, while the exchange rate appreciates if the amount of domestic currency require to buy a foreign currency reduces. An appreciation in the real exchange rate may create current account problems because it leads to overvaluation. Overvaluation in turn makes imports artificially cheaper while exports relatively expensive, thus reducing the international competitiveness of a country (Takaendesa, 2006). Exchange rate volatility refers to the swings or fluctuations in the exchange rates over a period of time or the deviations from a benchmark or equilibrium exchange rate (Mordi, 2006). The existence of many parallel markets side-by-side the officially recognized foreign exchange market gives rise to exchange rate misalignment (Mordi, 2006).

Instability and/or fluctuations in exchange rate hurt producers and investors alike because it affects their projected (planned) revenue and costs, including profits margin. For instance, businesses (base on the exchange rate) set out the amount of money to be committed into acquiring raw materials and equipments/machines from abroad. In the same manner, they estimate their future stream of incomes. Instability in the exchange rate may distort the realization of such estimates. For example, exchange rate depreciation results in high cost of importing raw materials and capital goods. This in turn raises the cost of production and reduces the profits of the firms importing these items. In order to cushion the effects of high cost of production, they (firms) would pass it on to the consumers in form of higher prices. Besides, production will decline and unemployment will rise. Couple with these, are the reduction in exports, accumulation of trade deficits and deterioration of balance of payments, as well as decline in the welfare of the people.

Prior to the year 1986, Nigeria practiced a fixed exchange rate, when the Naira was pegged against the British pound and later on the American dollar. However, with the collapse of the Bretton wood institutions, a flexible exchange rate policy was adopted, and the Nigerian exchange rate was allowed to float and its value relative to the American dollar determined by market forces of demand and supply. Some of the policies employed to ensure exchange rate stability included among others: Second-Tier Foreign Exchange Market (SFEM), Autonomous Foreign Exchange Market (AFEM), Inter-bank Foreign Exchange Market (IFEM), the enlarged Foreign Exchange Market (FEM), and the Dutch Auction System (DAS). It is pertinent to mention here that the inability and failure of individual policy to achieve stability in the exchange rate led to the adoption of another. Despite various efforts by government to maintain exchange rate stability (as well as avoiding its fluctuations and misalignment) in the last two decades, the Naira continued to depreciate against the American dollar. For example, the Naira appreciated against the American dollar from N0.7143 in 1970 to N0.6159 in 1975 and further to N0.5464 in 1980 (see appendix 1). However, the exchange rate depreciated throughout the 1980s. For instance, the naira depreciated from N0.6100 in 1981 to N2.0206 in 1986 and further to N8.0378 in 1990. Although the exchange rate became relatively stable in the mid-1990s, it depreciated further to N102.1052, N120.9702, and N133.5004 in 2002, 2002, 2004; respectively. Thereafter, the exchange rate appreciated to N132.147, N128.6516, and N117.968 in 2005, 2006, and 2007; respectively (see appendix 1).

In early 2009, the Naira depreciated to N170 against the American dollar. Some have attributed the recent depreciation to the decline in the nation's foreign exchange reserves. Others argue that the activities of some market operators (speculators) and banks are responsible for the recent decline in the value of the naira. It has also been argued that the quest for higher profits in the face of the global economic meltdown is forcing some banks to engage in 'round-tripping', a situation in which banks buy foreign exchange from the Central Bank of Nigeria (CBN) and sell to parallel market operators at prices other than the official prices. These practices lead to exchange rate fluctuations and misalignment. The exchange rate is approximately N150 against the American dollar.

In his own view, Obadan, (2006) argued that some of the factors that led to the depreciation of the Nigerian exchange rate include weak production base, import-dependent production structure, fragile export base and weak non-oil export earnings, expansionary monetary and fiscal policies, inadequate foreign capital inflow, excess demand for foreign exchange relative to supply, fluctuations in crude oil earnings, unguided trade liberalization policy, speculative activities and sharp practices (round-tripping) of authorized dealers, over-reliance on imperfect foreign exchange market, heavy debt burden, weak balance of payments position, and capital flight.

From the foregoing discussion, the questions that are raised include:

(i) what are the determinants of the Nigerian exchange rate movement?

(ii) what policy options can be drawn from any empirical study on the determinants of the Nigerian exchange rate?

This study is very important because the Nigerian exchange rate has continued to depreciate against the American dollar since the 1980s, particularly following the deregulation of the foreign exchange market. Besides, instability in the exchange rate has far reaching implications such as high rates of inflation and unemployment, declining investment, low production and low competitiveness of exports, balance of payments disequilibrium, inefficiency in resource allocation, and low standard of living, to mention just few. Thus, examining factors that determine exchange rate movement becomes very important.

The paper is organized as follows. Section one is the introduction while section two consists of literature review and theoretical framework. Section three contains methodology and model estimation, while section four is for discussion of results. Section five contains recommendations and conclusion.

II. EMPIRICAL LITERATURE AND THEORETICAL FRAMEWORK

This section reviews past empirical and theoretical literature on the determinants of exchange rate.

Empirical Literature

Many scholars have conducted empirical research in order to examine factors that influence the movement of the exchange rate. For instance, Yu Hsing (2006) empirically examined the determinants of short-term real exchange rates for Venezuela. The author confirmed that government deficit has positive effect on exchange rate, while broad money supply, world interest rate, county risk, and the expected rate of inflation have negative impact on exchange rate. The author suggested that, authorities should avoid fiscal indiscipline in order to prevent the exchange rate from real appreciation since it will check the country's exports from declining. Annsofie Petersson (2005) investigated the variables that affect exchange rate movements in Sweden, the United Kingdom and Japan against the US dollar for the period 1995 to 2004. The results indicate that interest rate differential is statistically significant in explaining changes in exchange rate in the three countries. In addition, interest rate has negative effect on exchange rate in Sweden and the United Kingdom. However, the influence of money supply, industrial production, and inflation differential on exchange rate varies between the countries. Odedokun (1997) studied a group of 38 African countries, by examining the impact of macroeconomic policies, devaluation and fundamentals on real exchange rate movement. The author found that public sector fiscal deficits, growth of domestic credit, domestic absorption-GDP ratio, government consumption-GDP ratio, private consumption-GDP ratio, improvement in terms of trade, income per capita and black market exchange rate premium lead to real exchange rate appreciation. On the contrary, devaluation, investment-GDP ratio, consumer-wholesale price ratio in trading-partner countries, and economic growth in industrial countries result in real exchange rate depreciation. Studies by Hsieh (1982), Marston (1987), and Edison and Klovland (1987) indicated that productivity differentials lead to exchange rate appreciation, thus confirming the Balassa-Samuelson effect.

Imed Drine and Christophe Rault (2003) analyzed the main determinants of the real exchange rate in the Middle East and North Africa (MENA) countries. The authors' findings illustrate that output per capita, government consumption, real interest rate differentials, and the degree of openness of the economy influence the real exchange rate. In Zambia, Beatrice (2001) employed a co-integration technique to investigate the long-run determinants of the real exchange rates for imports and exports, and of the internal real exchange rate. The results showed that real exchange rate for imports is affected by terms of trade, government consumption, and investment share. Moreover, terms of trade, central bank reserves and trade taxes have long-run impact on the real exchange rate for exports. It was also found that terms of trade, investment share, and the rate of growth of real GDP have long-run effect on the internal real exchange rate. Lastly, foreign aid and openness have short-run influence on the real exchange rate indices.

David Faulkner and Konstantin Makrelor (2008) used the single Engel Granger techniques to examine the drivers of the manufacturing equilibrium exchange rate over the period 1995 to 2006 in South Africa. The authors results showed that unit labour cost, productivity, government expenditure, and openness are the main drivers of the manufacturing exchange rate. In his paper, Mamta Chowdhury (1999) observed that nominal devaluation plays an important role in the real exchange rate determination. The author also reported that net capital inflow, foreign aid, trade restrictions and macroeconomic policies lead to real exchange rate appreciation in Papua Guinea. However, the author did not confirm any significant influence of the improvement in external terms of trade on trade-weighted real exchange rate. MacDonald and Ricci (2003) found that terms of trade, real interest rate differential, net foreign assets, and GDP per capita have positive influence on real exchange rate in South Africa. On the other hand, the degree of openness and overall fiscal balance have negative impact on real exchange rate. Speller (2006) investigated the exchange rate determinants in the industrialized commodity currency economies. The results illustrate that the price of the commodity exports was an important determinant of the real exchange in the group of countries studied. Frankel (2007) revealed that real exchange rate is positively related to terms of trade, real interest differential and lagged real exchange rate. However, capital account liberalization, risk premium and per capita income have negative effect on real exchange rate. Patel and Srivastava (1997) discovered that investment-GDP ratio, overall fiscal deficit and nominal exchange rate were the principal determinants of real exchange rate in India.

In Angola, Takaendesa (2006) confirmed that terms of trade, real interest rate differential, domestic credit, openness and technological progress have long-run impact on real exchange rate. Overall, terms of trade, domestic credit and openness have significant influence on real exchange rate in the short-run, while terms of trade and domestic credit have both short-run and long-run effect on real exchange rate. In the same vein, Enrique Gelbard and Jun Nagayasu (2004) examined the determinants of Angola's real exchange rate. They found that the most important determinants of real exchange rate are oil prices and foreign interest rate. However, their results did not support the argument that monetary growth influences exchange rate. Thus, they advised that a flexible exchange rate is more appropriate than a fixed exchange rate regime. The econometric results of Aron et al. (1997) are indeed revealing. Firstly, they showed that capital flows lead to exchange rate appreciation. Secondly, trade openness, government expenditure, non-gold terms of trade and real price of gold have both short-run and long-run effects on real exchange rate. That is, more openness, worsening terms of trade and reduced capital flows lead to real depreciation. However, unsustained government expenditure results in exchange rate overvaluation. Moreover, nominal devaluation has a significant negative effect on the real exchange rate, while the lagged nominal devaluation has a significant positive effect on real exchange rate. Furthermore, excess domestic credit supply has a significant positive influence on real exchange rate, thus increases in domestic credit supply lead to exchange rate appreciation. Lastly, lagged growth differentials has positive and significant impact on real exchange rate. In Nigeria, Obadan (1994) reported that, whereas improvement in terms of trade leads to appreciation in nominal exchange rate, increases in net capital inflows results to real exchange rate appreciation. Furthermore, increases in monetary aggregates lead to real exchange rate depreciation. On his part, Juraj Stancik (2006) reported that whereas openness has a negative effect on exchange rate volatility, the 'news' variable has a positive influence on exchange rate volatility among the new EU members.

Theoretical Framework

The framework for this study is based on the Balassa-Samuelson hypothesis, which states that productivity differentials affect the movement of the real exchange rate. For example, if productivity in the tradeables sector of the economy grows faster than productivity in the non-tradeables sector, it will push-up wages in the economy, including the non-tradeables sector (David Faulkner and Konstantin Makrelor, 2008). The increase in wages in turn raises both domestic demand and prices of tradeables and non-tradeables, thereby leading to exchange rate appreciation. Thus, increases in productivity differentials results to an exchange rate appreciation.

Besides productivity differentials, David Faulkner and Konstantin Makrelor (2008) argued that other variables can also influence the exchange rate. For instance, if a country is a net exporter of commodity, an improvement in the terms of trade would increase its wealth. This in turn increases domestic demand in the tradeables and the non-tradeables sectors of the economy. The increase in demand leads to higher commodity prices as well as exchange rate appreciation. On the contrary, deterioration in the terms of trade would not only reduce the wealth of a country, but also leads to a decline in domestic demand and prices, consequently exchange rate will depreciate.

Moreover, David Faulkner and Konstantin Makrelor (2008) opined that, if a country has a positive net asset holding, it will enhance its capacity to import for some time. In addition, it will raise the country's demand for domestically produced goods (both tradeables and non-tradeables) as well as their prices, thus leading to exchange rate appreciation. Another important factor that affects the exchange rate is the degree of openness of the economy. If an economy protects its domestic producers (and goods) by introducing high tariffs, exchange controls and quotas on imports, domestic demand and commodity prices will increase. These lead to exchange rate appreciation. However, if the economy becomes more open and protection is reduced, the demand for domestic goods and their prices will fall, thus resulting to exchange rate depreciation (David Faulkner and Konstantin Makrelor, 2008).

The authors also pointed out that foreign aid accounts for a high percentage of the GDP of many (poor) countries, and its eases their balance payments problems. They conclude that exchange rate rises with the inflow of foreign aid, and vice versa.

Furthermore, the demand for a country's currency is an important determinant of the exchange rate. For example, if the demand for a country's currency is high, it will lead to exchange rate appreciation and vice versa (Mamta Chowdhury, 1999; Jhingan, 2003). Government fiscal policy also influences the movement of the exchange rate. For instance, an expansionary fiscal policy that raises government consumption expenditure would lead to high domestic demand for both tradeables and non-tradeables. This in turn leads to increase in commodity prices and exchange rate appreciation. Lastly, technological improvement (measured by the growth of real GDP) is also useful in explaining the exchange rate movement. Advancement in technology among other things raises the efficiency and productivity of factors of production, reduces costs of production and prices of the tradeables, and increases their competitiveness. This leads to exchange rate depreciation. However, if the advancement in technology raises income and demand for non-tradeables, but reduces the relative prices of tradeables to non-tradeables, exchange rate will appreciate (Mamta Chowdhury, 1999).

III. METHODOLOGY AND MODEL ESTIMATION

This study employs co-integration and error correction approach to estimate the relationship between exchange rate and its potential determinants. The econometric model has its basis on the Balassa-Samuel hypothesis which states that increases in productivity differentials lead to exchange rate appreciation. Thus the econometric model expresses the exchange rate (EXC) as a function of productivity differentials (PROD). However, in the literature, there are other variables that can influence exchange rate movement. They include government consumption expenditure (GOCO), openness of the economy (OP), investment (INVT), and interest rate differentials (INTD), inflation rate (INFL) and foreign exchange reserves (RES). Thus, the model is represented as:

EXC = [[theta].sub.0] + [[theta].sub.1] [PROD.sub.t] + [[theta].sub.2] [GOCO.sub.t] + [[theta].sub.3] [INTD.sub.t] + [[theta].sub.4] [OP.sub.t] + [[theta].sub.5] [RES.sub.t] + [[theta].sub.6] [INVT.sub.t] + [[theta].sub.7] [INFL.sub.t] + [U.sub.t] (I)

The variables are defined and measured as follows: productivity differentials refer to the growth rate of gross domestic product (GDP). Government consumption is measured as the ratio of government consumption expenditure to the GDP. Interest rate differentials refer to the difference between the Nigerian lending rate and the world interest rate (captured by the United States interest rate). Openness is measured by the ratio of total imports plus exports to the GDP. Investment is captured by the ratio of gross fixed capital formation to the GDP. Reserves refer to the nation's foreign exchange reserves, and inflation rate refers to the annual rate of inflation.

Before estimating the exchange rate model, the authors determined whether the economic variables were stationary or not. This was done to avoid the generation of spurious results. The stationarity (unit root) test was conducted by employing the Augmented Dicker-Fuller (ADF) statistic. The result of the stationarity test is presented in the table below:
Table 1
Results of The Stationarity (Unit Root) Test

Variables    ADF Statistic    Critical values    Order of integration

EXC          -4.819583        1%=-2.630762       Stationary at first
             (0.000)          5%=-1.950394       difference
                              10%=-1.611202

PROD         -7.507163        1%=-2.634731       Stationary at first
             (0.0000)         5%=-1.951000       difference
                              10%=-1.610907

OP           -9.936828        1%=-2.630762       Stationary at first
             (0.0000)         5%=-1.950394       difference
                              10%=-1.611202

INTD         -6.364748        1%=-2.644302       Stationary at first
             (0.0000)         5%=-1.952473       difference
                              10%=-1.610211

GOCO         -6.177923        1%=-2.644302       Stationary at first
             (0.0000)         5%=-1.952473       difference
                              10%=-1.610211

INVT         -4.801166        1%=-2.644302       Stationary at first
             (0.0000)         5%=-1.952473       difference
                              10%=-1.610211

RES          -7.412588        1%=-2.636901       Stationary at second
             (0.0000)         5%=-1.951332       difference
                              10%=-1.610747

INFL         -5.946757        1%=-2.632688       Stationary at first
             (0.0000)         5%=-1.950687       difference
                              10%=-1.611.059

ECM          -2.185817        5%=-1.952473       Stationary at levels
             (0.0299)         10%=1.610211


As indicated in the table above, variables such as exchange rate, productivity differentials, degree of openness, interest rate differentials, government consumption expenditure, investment, and inflation are stationary at first difference. However, foreign exchange reserves and the error correction variable are shown to be stationary at second difference and at levels, respectively. The next exercise is the estimation of the exchange rate function. The result of the estimation is presented below:
Table 2
Results of the Regression Exercise

Dependent Variable: EXC
Method: Least Squares
Date: 04/30/09 Time: 12:46
Sample (adjusted): 1977 2006
Included observations: 30 after adjusting endpoints

Variable             Coefficient   Std. Error   t-Statistic     Prob.

C                       46.42800     29.28084      1.585610     0.1278
PROD(-2)               -0.386215     0.138024     -2.798167     0.0108
OP(-1)                  52.08746     24.30978      2.142655     0.0440
INTD(-1)                1.055282     0.665435      1.585853     0.1277
GOCO(-2)               -233.9332     193.4497     -1.209272     0.2400
INVT                   -144.3614     57.26013     -2.521151     0.0198
RES                     1.65E-05     3.43E-06      4.809739     0.0001
INFL                   -0.597042     0.199857     -2.987350     0.0070
ECM(-1)                 0.811634     0.163857      4.953318     0.0001
R-squared               0.925151     Mean dependent var       38.07074
Adjusted R-squared      0.896638     S.D. dependent var       50.75758
S.E. of regression      16.31856     Akaike info criterion    8.665808
Sum squared resid       5592.204     Schwarz criterion        9.086168
Log likelihood         -120.9871     F-statistic              32.44584
Durbin-Watson stat      1.836997     Prob(F-statistic)        0.000000

Note: Negative sign implies appreciation, while positive sign
denotes depreciation.


IV. DISCUSSION OF RESULTS

The regression results indicate that the explanatory variables account for approximately 92.52 percent changes (or variations) in the exchange rate. The Durbin Watson statistic (1.84) illustrates the absence of autocorrelation. The F-statistic (32.45) shows that the explanatory variables are jointly significant and are capable of explaining changes in exchange rate. Moreover, the estimation reveals that productivity differentials is statistically and economically significant in explaining exchange rate. A 1 percentage increase in the productivity differentials in the previous two years leads to approximately 0.39 percentage appreciation in the exchange rate. This is in line with the work of Hsieh (1982) Marston (1987) Edison and Klovland (1987). Thus, if higher productivity results to an increase in higher wages and domestic demand, as well as raise prices of commodities in the economy, exchange rate will appreciate. The results also reveal that the degree of openness of the economy is statistically significant in explaining exchange rate movement. For instance, a 1 percentage increase in the degree of openness in the previous one year results in approximately 52.09 percentage decrease in exchange rate. This finding lends support to the one reported by Aron et al. (1997) and Takaendesa (2006). Thus, the more the economy is open, the lower the demand for domestically produced goods. This in turn reduces prices of domestically produced goods, consequently exchange rate will depreciates. Furthermore, the interest rate differential is shown to be statistically and economically significant in explaining the exchange rate. A 1 percentage increase in the interest rate differentials in the previous one year causes the exchange rate to depreciate by approximately 1.06 percentage. This confirms the work of Annosofie Petersson (2005). Thus, the higher the gap between Nigerian interest rate and the international rate, the higher the inflow of foreign capital, thereby causing exchange rate to appreciate. The results also show that investment has a statistically significant influence on exchange rate. A 1 percentage increase in investment causes the exchange rate to appreciate by approximately 144.36 percentage. This is in line with Patel and Srivastava (1997) and Beatrice (2001). Thus, if increases in investment lead to higher productivity, income and demand, as well as increase in prices within the economy, it will lead to exchange rate appreciation. Another discovery from the estimation is that foreign exchange reserves has a statistically significant effect on the exchange rate. For instance, a 1 percentage increase in the foreign exchange reserves causes the exchange rate to depreciate only by little. Thus, if increase in foreign exchange reserves raises the demand for imports, it will lead to exchange rate depreciation. The results also reveal that inflation rate is statistically significant in explaining exchange rate. A 1 percentage increase in inflation results to approximately 0.60 percentage appreciation in the exchange rate. This may be true if the increase (mild) in inflation induces producers to increase investment and raise production. This will in turn raise income, thereby leading to exchange rate appreciation. Unfortunately, the estimation reports that government consumption has an insignificant effect on the exchange rate.

Lastly, the error correction variable has been found to be significant and positive, implying that there is a divergence between the actual and desired levels of exchange rate in Nigeria.

V. RECOMMENDATIONS AND CONCLUSION

Following the results obtained from the regression results, we recommend the following:

(i) Government and policy makers should employ policies that would increase productivity in all sectors of the economy, through the creation of an enabling environment and provision of subsidies so that businesses can grow. This in turn would lead to exchange rate appreciation.

(ii) Both private and public sector investment should be increased, in order to raise production. Public investment should take the form of increased spending on infrastructural development. This would induce and encourage private sector investment through increased profitability, consequently leading to exchange rate appreciation.

(iii) Efforts should be geared towards increasing the nation's foreign exchange reserves. Increase in reserves ensures some level of stability in the exchange rate. The recent stability in the Nigerian exchange rate has been attributed to the rise in the foreign exchange reserves, which has enhanced the central bank's ability in meeting high foreign exchange demand.

(iv) The economy should accommodate or tolerate some level of (mild) inflation in order to encourage producers to expand production of goods and services. This will eventually lead to exchange rate appreciation.

(v) Government should employ appropriate trade policies in order to enhance exports and raise the value of the exchange rate. These include reduction in export and excise duties, including the value added tax VAT.

(vi) Interest rate should be further liberalized so as to encourage the inflow of foreign capital. This will increase domestic investment and production, including demand for good and services, thereby leading to exchange rate appreciation.

(vii) Government consumption expenditure should be carried out in a manner that it will encourage and promote investment, and increase domestic demand. Consequently, it will lead to exchange rate appreciation.

(viii) Finally, government should ensure that the political system is deepened further, improve power supply and intensify the war against corruption, in order to encourage both domestic and foreign investment, as well as raise productivity. All of these should check the continuous depreciation of the exchange rate, and over a long term leads to its appreciation or stability.
APPENDIX 1: EXCHANGE RATE (NAIRA AGAINST THE AMERICAN DOLLAR)

                 Exchange rate          Exchange rate
                (Naira against          depreciation/
Years     the American dollar)     Appreciation (9 b)

1970                    0.7143                    --
1971                    0.6955               -2.70309
1972                    0.6579               -5.71515
1973                    0.6579                      0
1974                    0.6299               -4.44515
1975                    0.6159                -2.2731
1976                    0.6265               1.691939
1977                    0.6466               3.108568
1978                     0.606               -6.69967
1979                    0.5957               -1.72906
1980                    0.5464               -9.02269
1981                      0.61               10.42623
1982                    0.6729                 9.3476
1983                    0.7241               7.070847
1984                    0.7649               5.334031
1985                    0.8938               14.42157
1986                    2.0206               55.76561
1987                    4.0179               49.71005
1988                    4.5367               11.43563
1989                    7.3916               38.62357
1990                    8.0378               8.039513
1991                    9.9095               18.88794
1992                   17.2984               42.71436
1993                   22.0511               21.55312
1994                   21.8861                -0.7539
1995                   21.8861                      0
1996                   21.8861                      0
1997                   21.8861                      0
1998                   21.8861                      0
1999                   92.6934               76.38872
2000                  102.1052               9.217748
2001                  111.9433               8.788467
2002                  120.9702               7.462086
2003                  129.3565               6.483091
2004                  133.5004               3.104036
2005                   132.147               -1.02416
2006                  128.6516               -2.71695
2007                   117.968               -9.05635

Source: column 2 is obtained from Central Bank of Nigeria statistical
bulletin (various issues), column 3 was computed by the author

APPENDIX 2: MACROECONIC INDICATORS

              Exchange               GDP          Consumer
Years      Rate (NI $)              (Nm)       Price Index

1970             0.7143          5,205.10               N.A
1971             0.6955          6,570.70               N.A
1972             0.6579          7,208.30               N.A
1973             0.6579         10,990.70               N.A
1974             0.6299         18,298.30               N.A
1975             0.6159         20,957.00               N.A
1976             0.6265         26,656.30              25.6
1977             0.6466         31,520.30              29.6
1978              0.606         34,540.10              34.5
1979             0.5957         41,947.70              38.5
1980             0.5464         49,632.30              42.3
1981               0.61         50,456.10              51.2
1982             0.6729         51,653.40              55.1
1983             0.7241         56,312.90              67.9
1984             0.7649         62,474.20              94.8
1985             0.8938         70,633.20               100
1986             2.0206         71,859.00             105.4
1987             4.0179        108,183.00            116.10
1988             4.5367        142,618.00            181.20
1989             7.3916        220,200.00            272.70
1990             8.0378        271,908.00            293.20
1991             9.9095        316,670.00            330.90
1992            17.2984        536,305.10            478.40
1993            22.0511        688,136.60            751.90
1994            21.8861        904,004.70          1,180.70
1995            21.8861      1,934,831.00          2,040.40
1996            21.8861      2,703,809.00          2,638.10
1997            21.8861      2,801,972.60          2,863.30
1998            21.8861      2,721,178.40          3,149.20
1999            92.6934      3,313,563.10          3,357.60
2000           102.1052      4,727,522.60          3,923.80
2001           111.9433      5,374,334.80          4,268.10
2002           120.9702      6,232,243.60          5,151.50
2003           129.3565      6,061,700.00          5,493.30
2004           133.5004     11,411,066.90          6,318.40
2005            132.147     15,610,881.50          7,446.40
2006           128.6516     18,564,594.70          8,059.60
2007            117.968     23,280,715.00               N.A

                Export            Import      Max. Lending
Years             (NM)              (Nm)          Rate (%)

1970              885.4             756.4                 8
1971           1,293.40          1,078.90                10
1972           1,434.20            990.10                10
1973           2,278.40          1,224.80                10
1974           5,794.80          1,737.30                10
1975           4,925.50          3,721.50                 9
1976           6,751.10          5,148.50                10
1977           7,630.70          7,093.70                 6
1978           6,064.40          8,211.70                11
1979          10,836.80          7,472.50                11
1980          14,186.70          9,095.60               9.5
1981          11,023.30         12,839.60                10
1982           8,206.40         10,770.50             11.75
1983           7,502.50          8,903.70              11.5
1984              9,088          7,178.30                13
1985          11,720.80          7,062.60             11.75
1986           8,920.60          5,983.60                12
1987          30,360.60         17,861.70              19.2
1988          31,192.80         21,445.70              17.6
1989          57,971.20         30,860.20              24.6
1990         109,886.10         45,717.90              27.7
1991         121,535.40         89,488.20              20.8
1992         205,611.70        143,161.20              31.2
1993         218,770.10        165,629.40             36.09
1994         206,059.20        162,788.80                21
1995         950,661.40        755,127.70             20.79
1996       1,309,543.40        562,626.60             20.86
1997       1,241,662.70        845,716.60             23.32
1998         751,856.70        837,418.70             21.34
1999       1,188,969.80        862,515.70             27.19
2000       1,945,723.30        985,022.40             21.55
2001       2,001,230.80      1,358,180.30             21.34
2002       1,882,668.20      1,512,695.30             30.19
2003       2,889,846.70      2,080,235.30             22.88
2004       4,620,085.20      1,987,045.30             20.82
2005       6,310,247.90      3,792,821.20             19.49
2006       5,752,747.70      4,296,716.40             18.41
2007       8,126,000.50      5,289,824.40             18.36

            Investment          Interest          Reserves
Years             (Nm)          Rate (%)              (Nm)

1970                N.A               N.A             104.6
1971                N.A               N.A             132.3
1972                N.A               N.A             191.6
1973                N.A               N.A               241
1974                N.A               N.A          3,112.50
1975           5,019.80               N.A          3,380.10
1976           8,107.30              5.05          3,057.60
1977           9,420.60              5.54          2,521.00
1978           9,386.30              7.93          1,249.10
1979           9,094.50              11.2          3,043.20
1980          10,841.20             13.36          5,445.60
1981          12,215.00             16.38          2,424.80
1982          10,922.00             12.26          1,026.50
1983           8,135.00              9.09            781.70
1984           5,417.00             10.23          1,143.80
1985           5,573.00               8.1          1,641.10
1986           7,323.00              6.81          3,587.40
1987          10,661.10              6.66          4,643.30
1988          12,383.70              7.61          3,272.70
1989          18,414.10              9.22         13,457.10
1990          30,626.80               8.1         34,953.10
1991          35,423.90               5.7         44,249.60
1992          58,640.30              3.52         13,992.50
1993          80,948.10              3.02         67,245.60
1994          85,021.90               4.2         30,455.90
1995         114,476.30              5.84         40,333.20
1996         172,105.70               5.3        174,309.90
1997         205,553.20              5.46        262,198.50
1998         192,984.40              5.35        226,702.40
1999         175,735.80              4.97        546,873.10
2000         268,894.50              6.24      1,090,148.00
2001         371,897.90              3.89      1,181,652.00
2002         438,114.90              1.67      1,013,514.00
2003         429,230.00              1.13      1,065,093.00
2004         456,970.00              1.35      2,232,837.00
2005       1,780,040.00              3.21      3,647,998.70
2006          2,272,760              4.96      5,425,578.60
2007                N.A               4.5      6,055,717.00

Source: Central Bank of Nigeria (various issues), International
Monetary Fund (various issues)


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BEN OBI, WAFURE, OBIDA GOBNA AND

ABU, NURUDEEN

University of Abuja, Abuja-Nigeria
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