Exchange Rate Volatility and Agricultural Exports in Nigeria (1981-2016)

Abstract

This study was carried out to examine the Exchange Rate Volatility and Agricultural Export in Nigeria between 1981 and 2016. The data on agricultural exports, real exchange rate, agricultural credits and nominal exchange rate were obtained from the Central Bank of Nigeria Statistical Bulletin spanning over 36 years (1981-2016). Augmented Dickey-Fuller (ADF) unit root test was used to test for the stationarity of the data set. The Johansen co-integration test was used to determine the long run relationship among the variables while the Granger Causality test was adopted to determine the direction of causality among the variables. The results of the Vector Error Correction Model (VECM) for the estimation of short run adjustment of the variables towards their long run relationship indicated that 68% of disturbance in the short run was corrected for every year with respect to the periods under study. It also showed that there is a significant direct relationship between agricultural exports and nominal exchange rate as well as agricultural credits. Total exports responded positively to increase in nominal exchange rate while its response to real exchange rate depends on the direction of the shock (increase or decrease). The analysis indicated that the relationship between agricultural credit and export was negative. The granger causality test revealed that causation exists from nominal exchange rate to agricultural export and from real exchange rate to nominal exchange rate. Autoregressive Conditional Heteroscedascity (ARCH) and General Autoregressive Conditional Heteroscedascity (ARCH- GARCH) was used to estimate the volatility of exchange rates which revealed that exchange rate in Nigeria is highly volatile and may positively or negatively impact on the agricultural exports of the country. The study therefore concluded that real exchange rate is significant in determining the volume of agricultural exports in Nigeria. The study recommends that the government, through the Central Bank of Nigeria, should provide more incentives to boost agricultural exports by improving on the stabilisation of exchange rate with a view to promoting agricultural exports.