Foreign Exchange Market Pressure and Balance of Payment Equilibrium in Nigeria

Taiwo V. Ojapinwa; Margaret A. Loto

Taiwo V. Ojapinwa Department of Economics, University of Lagos, Lagos, Nigeria
Margaret A. Loto Department of Economics, University of Lagos, Lagos, Nigeria

Keywords: Foreign Exchange, Market Pressure, External Reserve, Balance of Payment, Nigeria

Abstract

Within the monetary and the balance of payment approaches which established that large exchange rate fluctuations may be detrimental to economic performance, this study examined the response of exchange market pressure (EMP) on balance of payment equilibrium in Nigeria. Adopting Autoregressive Distributive Lag (ADRL), this study found that EMP had a negative and significant impact on balance of payment in Nigeria. This implies that exchange rate depreciation increased pressure on external reserve and causes deficit in the balance of payment. To correct for this, government may need to adopt measures such as economic diversification anchored on comparative advantage, rebuild the productive sectors – manufacturing and industrial to achieve higher capacity untilisation and productivity and competitvive export, encourage local refining of petroleum products, promote fiscal and monetary discipline and harmony and create an enabling environment for productive capital inflows, especially foregn direct investment.

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