Title page …………………………………………………………i
Certification ………………………………………………………ii
Dedication…………………………………………………………iii
Acknowledgement…………………………………….…………..iv
Table of Contents…………………………………………………v
Abstract……………………………………………………………ix
CHAPTER ONE: INTRODUCTION
Background of the Study………………………………………1
Statement of the Research Problem……………………………7
Research Question……………………………………………..10
Objectives of the Study…………………………………………10
Hypothesis of the Study………………………………………..12
Scope of the Study……………………………………………..12
Significance of the Study………………………………………13
Limitation of the Study…………………….…………………..13
Definition of Terms……………………………………………14
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction……………………………………………………..16
2.1.1 The Models of Exchange Rate Determination………………..17
2.1.2 Assumptions under Monetary Model…………………………19
2.2 The Concept of Deregulation……………………………………20
2.3 Theoretical Literature…………………………………………..21
2.3.1 Benefits Derived from the Deregulation of Exchange
Rate in any Economy…………………………………………………………..21
2.3.2 Drawbacks of Deregulation…………………………………22
2.3.3 Factors Affecting Exchange Rates………………………….22
2.3.4 Types of Exchange Rate System……………………………26
2.3.5 Problems of Economic Development………………………..28
2.4 Empirical Literature……………………………………………30
2.4.1 Pattern of Exchange Rate in Nigeria…………………………30
2.4.2 Exchange Rate Deregulation in China………………………33
2.4.3 Exchange Rate Deregulation in the Gulf Oil
Countries……..36
2.4.4 Pattern of Exchange Rates in Kenya…………………………40
CHAPTER THREE:
RESEARCH METHODOLOGY
3.1 Introduction……………………………………………………43
3.2 Model Specification…………………………………..……….43
3.3 A Priori Expectation…………………………………..……….44
3.4 Method of Data Analysis………………………………………45
3.5 Data for Regression…………………………………………….46
CHAPTER FOUR:
EMPIRICAL ANALYSIS
4.1 Presentation of Regression Result………………………………48
4.2 Interpretation of Regression Result………………………………48
4.3 Policy Implication………………………………………………..51
CHAPTER FIVE: SUMMARY, RECOMMENDATION AND CONCLUSION
5.1 Summary……………………………………………………….55
5.2 Conclusion……………………………………………………..56
5.3 Recommendations………………………………………………57
Bibliography………………………………..………………………
ABSTRACT
The purpose of this work is to critically evaluate and
apprise “the Effect of Exchange Rate Deregulation on the Nigeria economy”.
The methodology used is Ordinary Least Square (OLS)
regression techniques as well as the Cochrane Orcutt method. Data used were
annual time series data covering the period of 1970 – 2011. These data used
were obtained from various secondary sources like the Annual Reports and
Statistical Bulletin of Central Bank of Nigeria (CBN).
The findings of this research work reveals that the annual
growth rate of exchange rate is positively related to balance of payment,
inflation rate and interest rate, while it is inversely related to GDP and
price level. The implication is that the GDP decreases when the exchange rate
activities thrive.
CHAPTER ONE
Introduction
1.1 Background of the Study
How various individuals, groups, business persons and
government have expressed concerns about attitudes of Nigerians towards the
deregulation of exchange rate. Basically, the paper shows the relationship
between the Nigeria economy and the government recent and past policies to
increase the rate of converting Naira to Dollar.
Starting up with the current trends on the deregulation of
the Nigeria currency in the foreign exchange market. On Wednesday, 20 January,
2016, an article was published in the Daily Sun Newspaper, as follows; Speaking
during the opening of a one-day CBN/NEXIM Non-oil Simulation Conference in
Abuja, CBN Governor Mr. Godwin Emefiele, attributed the decline (non-oil
revenue by $6.14billion) to the low level of exports loan which he said, caused
the decline in non-oil export revenue receipts from $10.53billion in 2014 to
$4.39billion in 2015.
He further by saying, it has been observed that while credit
to non-oil export is declining and currently at an average of 0.6 per cent of
total domestic loans to the private sector in the past five years, domestic
credit to the economy has been on the rise.
Managing Director of Nigeria Export Import Bank (NEXIM) Mr.
Robert Orya, said the gathering at the seminar underscored the recurring
problem of the volatility in the international oil market which has challenged
the Nigeria economy over the years.
He said the recent rebasing of Nigeria’s economy revealed
that production base had become much more diversified with the service sectors
accounting for about 52 per cent of the Gross Domestic Product in 2014. Orya
regetted that the revenue profile has remained skewed, with oil and gas sector
contributing over 70 per cent and over 90 per cent of government and export
earnings respectively, noting that the current episode of the global oil price
collapse is expected to be quiet protracted and had manifested in Nigeria in
significant revenue decline at all tiers of government with the attendant
macroeconomic and external sector challenges. “Non-oil Revenues Decline by
$6.14bn say CBN”, (2016).
On page 42 of the same newspaper, has it that Nigeria has
comparative advantages over China and most developed countries in the
production of tomatoes and many other farm produce, a status attributable to
national endowment of the country with better soil types. Exploring this
potential, according to Chief Eric Odinaka Umeofia, the President/CEO of Erisco
Foods Limited, an indigenous manufacturing company with over 18 high quality
food brands, all produced locally, is sine qua non to the success of President
Muhammadu Buhari administration’s economic diversification policy “New Forex
Policy ‘ll Lift Manufacturing Sector”, (2016).
Readers may ask, what relationship exist between the topic
and the sited scenarios above? One of the major purpose of deregulating
currency is diversification. More so, encouraging investment in local
production rather than consumable import. The policy looks impressive so far in
certain sector and also failed miserably in other sector. The failure is traced
to other economic mechanism that ought to be in place before now. According to
the CBN Governor Mr. Godwin Emefiele, attributed the decline (non-oil revenue
by $6.14 billion) to the low level of exports loan.
As it is popularly said that only those that comply with
regulations become regulators. The outcome of regulating an economy efficiently
and effectively often results to outstanding achievement of that economy.
Nigeria is a country that has always involved in different regulation
strategies. Implementation of a new regulation which usually considers changes
of previous regulation as a result of failed policies. The economic stabilization
measures involving strict exchange and trade controls, introduced in 1983 and
1984 and retained in 1985 accomplished very little, in an instance. When there
exists a regulatory failure, this could be due to excessive regulation and or
ineffective implementation of regulatory measures. Tola, (2006).