Page 128 - Contributed Paper Session (CPS) - Volume 5

CPS1144 Adeniji Nike Abosede et al.
economy, which lead to trade imbalance and global imbalance. This statement
was verified by Hooper et.al (1998) found out that trade flows are significantly
affected by real exchange rate, also Chin (2004) also found out similar result.
Various studies on the affection of exchange rate volatility on trade was
established in developed countries like US and Japan, Breuer and Clement
(2003,2004) concluded that trade between the these two countries are
affected by changes in price of exchange rate. Because changes in exchange
rate has significant effect on countries economy like Nigeria (developing
country), the government established a market determined nominal exchange
rate using interbank foreign exchange (IFEM), autonomous foreign exchange
rate (AFEM), Dutch auction system (DAS) and structural adjustment program
(ASAP) at different period of time for evaluation of naira exchange rate and
boosting of non –oil, and oil export. This introduction of the above programs
has a powerful effect on imports and exports of the country concerned
through effects on relative price of goods. But there are some factors that lead
to the changes in naira exchange rate, which allows a pitfall on non – oil export
like weak production base and undiversified nature of the economy, import –
dependent production structure, sluggish foreign capital flow, instability of
earnings from crude oil, upon which the economy depends very heavily,
unguided trade liberation, fiscal imbalance, speculative activities and sharp
practices of authorized foreign exchange dealers.
At the foreign exchange rate market, the naira depreciated consistently
against major other foreign currency which is the theory should increase
export performance as witness in other countries like US and China. Findings
from Granwa (1998) of the effect of individual European currency depreciation
on individual country export trade support this thought: national currency
depreciation affecting export trade positively. But question still comes in “does
frequent changes in price of exchange rate do have great effect on export
growth?” Chukwu (2007) observed that the instability exchange rate as a
determent of trade in Nigeria has a positive influence on export trade, this
makes a suggestion that changes in its value has a long run effect on export
and despite also on its economic growth. Also Osuntogun et.al (1993), Obadan
(1994) also have similar results. However, this paper seeks to address the
question on the impact of changes of exchange rate on export growth using
time series technique “variance decomposition” to aim us know the proportion
explained by exchange rate in both long run and short run relationship for the
period 1980 – 2010. The paper is organized as section 2 focuses on
methodology, section 3 focuses on result, section 4 is discussion and
conclusion.

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