ABSTRACT
This research critical examine the impact of Naira devaluation on economic growth in Nigeria. That without exchange rate, the exchange of goods and services among trading partners will be focused with a lot of problems which may virtually narrow it down to trade by barter. Thus exchange rate is also used to determine the level of output growth of the country. Nigeria is one such economy where demand for locally produced goods is at such a pitiful level. This makes it difficult for the exportation of such goods to the economies they were assumed to have from. As a result of the excess of import-over export Nigeria increase the cost of product and also result to inflation (cost push). By making the domestic currency relatively cheaper, local production and exportation of commodities is thereby encouraged. This will help solve unemployment problem and create a favorable balance of trade. This study made use of the ordinary least square (OLS) regression techniques in analyzing the impact of Naira devaluation on economic growth in Nigeria: 1980-2009.the battery test and also t-statistic table was carried out and our findings is that real exchange rate has significant impact on the economy which means that Naira devaluation have positive impact on the economy. It was therefore recommended that the policy devalues apt attention and should pursue.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The early 1980s drove home a truth which had been emerging in the 1970s that the world economy was becoming increasingly unstable. The combined effects of the second oil shock, an associated recession in OECD countries, a prolonged slump in real commodity prices, the outbreak of debt crisis with all its consequences for developing economies access to world saving and the erosion by non-tariff barriers of previous trade liberalization put the balance of payment of many developing countries under great strain making imperative decisive policy responses (Killick 1995). On the economic scene of Nigeria, ‘the oil boom(1973-74) affected not only the investment, production and consumption patterns of the country but also its socio-cultural valves, political aspirations, style of economic management and policies and programmes implemented (Olaniyan 1996).
Massive investments were made into infrastructures with significant capital outlay for imported components. Industries were outward-looking such that the globalThe global economic crisis created an awareness in the OECD Government and the International Financial Institution (IFIs, consisting of the IMF and the World Bank) that ‘many past policy interventions were aggravating rather than easing economic problems in developing countries and needed to be reformed’.
The World Bank response was the opening of a structural adjustment window while the IMF introduced (or revived in the case of the Extended Fund Facilities: the EFF) the structural statement fund (SAP) and Enhance Structural Adjustment Fund (ESAF) (Killick, 1995).(Yesufu, 1996:1989). The compound effect of the above was fiscal crisis, foreign exchange shortage, balance of payment and external debt crisis, high unemployment rate and negative economic growth (Olaniyan, 1996).crisis meant for them acute shortage of essential raw materials, capacity under-utilization and factory closures. The competitiveness of the agricultural sector was eroded by the overvalued exchange rate and investment was skewed in favor of ‘short-term highly profitable ventures such as construction, commerce and services sector at the expense of such productive sectors as agricultural and manufacturing which have long-term gestation periods creating structural imbalance within the economy.