Impact of Exchange Rate and Inflation on Economic Growth in Nigeria
DOI:
https://doi.org/10.47941/ijecop.3512Keywords:
Exchange Rate, Inflation, Economic Growth, Macroeconomic stabilityAbstract
Purpose: This study examines the impact of exchange rate volatility and inflation on Nigeria’s economic growth over the period 1986–2024. The objective is to evaluate both the short-run and long-run macroeconomic dynamics influencing real output growth, while accounting for the roles of interest rate and government expenditure as control variables.
Methodology: The study adopts an ex post facto research design using annual time-series data obtained from the Central Bank of Nigeria (CBN), National Bureau of Statistics (NBS), and World Development Indicators (WDI). The Autoregressive Distributed Lag (ARDL) model is employed to estimate both short-run and long-run relationships among the variables, with real GDP growth rate serving as the dependent variable. An Error Correction Mechanism (ECM) is incorporated to assess the speed of adjustment toward long-run equilibrium.
Findings: The empirical results reveal that exchange rate fluctuations and inflation exert significant negative effects on economic growth in both the short and long run. Government expenditure demonstrates a positive and statistically significant impact, highlighting the importance of fiscal policy in stimulating output, while interest rate shows a negative but weak influence on growth. The error correction term is negative and statistically significant, confirming the existence of a stable long-run equilibrium relationship among the variables. Overall, the findings indicate that persistent exchange rate depreciation and rising inflation have constrained Nigeria’s growth performance.
Unique Contribution to Theory, Policy and Practice: The study offers practical insights for macroeconomic management and underscores the need for exchange rate stability, effective inflation control, and efficient public expenditure management to promote sustainable economic development.
Downloads
References
Adaramola, O. A., & Dada, O. (2020). Impact of inflation on economic growth: evidence from Nigeria. Investment management and financial Innovation, 17 (2), 1-13. DOI:10.21511/imfi.17(2).2020.01
Adeniran, J. O., Yusuf, S. A., & Adeyemi, O. A. (2014). The impact of exchange rate on economic growth in Nigeria. Journal of Economics and Sustainable Development, 5(4), 1-9.
Aliyu, S. U. R., Yakubu, S., & Sanni, G. O. (2017). Exchange rate pass-through and inflation dynamics in Nigeria. CBN Journal of Applied Statistics, 8(1), 23–45.
Araoye, F.R (2021). Economic development and foreign capital investment inflow in Nigeria. International Accounting and Taxation Research Group, Faculty of management sciences, University of Benin, Benin City, Nigeria 5(1), 39-45
Azeez, B. A., Kolapo, F. T., & Ajayi, L. B. (2012). Effect of exchange rate volatility on macroeconomic performance in Nigeria. Interdisciplinary Journal of Contemporary Research in Business, 4(1), 149–155.
Baharumshah, A. Z., Slesman, L., & Wohar, M. E. (2017). Inflation, exchange rate and economic growth in emerging economies. Economic Modeling, 64, 245–258.
Cambell, O.A (2010). Foreign Exchange Market and Monetary Management in Nigeria. Journal of Emerging Trends In Economic and Management Sciences (JETEMS)1(2),102-106
Central Bank of Nigeria (CBN). (2022). Statistical Bulletin. Abuja: CBN.
Dornbusch, R., Fischer, S., & Startz, R. (2018). Macroeconomics (13th ed.). New York: McGraw-Hill.
Eze, O. R., & Okpala, C. S. (2014). Quantitative analysis of the impact of exchange rate policies on Nigeria’s economic growth: A test of stability of parameters. International Journal of Humanities and Social Science, 4(7), 265–272.
Fadare, S.O (2010). Recent banking sector, reforms, and economic growth in Nigeria. Middle eastern Financial and Economics 8(3), 1450-2889
Fijabi, K.L., Akande, A., Omilani, A., & Lasisi, O.R (2025). Devaluation and Inflation: Impact on the Economic Growth of Nigeria, Research Journal of Business Economic management 8(1), 1-12
Goldberg, P. K., & Knetter, M. M. (1997). Goods prices and exchange rates: What have we learned? Journal of Economic Literature, 35(3), 1243–1272.
Keynes, J. M. (1936). The General Theory of Employment, Interest, and Money. London: Macmillan.
Khosravi, A. & Karimi, M.S (2010). To investigate the relationship between Monetary Policy, Fiscal Policy and economic Growth in Iran: American Journal of Applied Science
Mishkin, F. S. (2016). The Economics of Money, Banking and Financial Markets (11th ed.). Boston: Pearson.
Obaseki, P.J. (2001). Foreign Management in Nigeria; Past, Present and future, CBN Economic Financial Review, 29, 57-78
Ogunleye, E. K., & Ayeni, T. (2019). Exchange rate dynamics and economic performance in Nigeria. African Journal of Economic Policy, 26(1), 55–74.
Olayiwola, A.M. (2023). Do Exchange Rate Fluctuations effect Economic Growth in Nigeria? Empirical evidence. Sletme Billimi Dergisi, 11(3), 277-290
Olusoji, M. O., & Ogunleye, E. O. (2015). Inflation and economic growth in Nigeria: An empirical analysis. Journal of Economics and Development Studies, 3(2), 47-58.
Onwubuarri, S.E., Oladeji, S.I & Bankola, R.R. (2021). Inflation and economic growth in Nigeria: An ARDL bound test. Sapienitia foumdation Journal of Education, sciences and Gender studies 3(1), 277290
Smith, A. (1776). An inquiry into the nature and causes of the wealth of Nations. London: W. Strahan and T. Cadell
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2026 Dr Peter Enueshike, Dr. Vincent Harrison
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
