ABSTRACT
This study explores the impact of exchange rate on Production Company in Nigeria from 1995 to 2023. The research investigates three main questions: the effects of exchange rate on Production exports, the significance of these effects, and whether a causal relationship exists between exchange rate fluctuations and Production exports. Using multiple regression analysis, the study examined the influence of exchange rate, inflation rate, foreign direct investment (FDI), and Production labor on Production exports. The findings reveal a significant negative impact of exchange rate fluctuations on Production exports, indicating that a depreciating currency reduces the competitiveness of Nigerian Production products in the international market. Inflation also shows a significant negative effect, further exacerbating the challenges faced by the sector. Conversely, FDI and Production labor positively influence Production exports, highlighting their roles in enhancing export performance. The Granger causality test confirms a significant causal relationship between exchange rate fluctuations and Production exports, demonstrating that changes in exchange rates directly affect export performance. The study concludes that stabilizing the exchange rate and controlling inflation are critical for improving Production export performance. Additionally, fostering a favorable investment climate and investing in Production labor can enhance productivity and export capacity. The research contributes to the understanding of how exchange rate dynamics impact Production exports and provides insights for policymakers to develop strategies that support the sector's growth. The limitations of the study include reliance on historical data and a focus on macroeconomic factors, which may not fully capture all influences on Production exports. Future research should explore additional factors such as technological advancements, climate change, and trade policies, and consider comparative analyses with other countries.
TABLE OF CONTENT
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study 6
1.2 Statement of the Problem 9
1.3 Research Questions 11
1.4 Objectives of the Study 12
1.5 Research Hypotheses 12
1.6 Scope of the Study 12
1.7 Significance of the Study 13
1.8 Organization of the Study 13
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction 15
2.1 Conceptual Review 15
2.1.1 Exchange Rate 15
2.1.2 Production exports 16
2.1.3 Exchange Rate Volatility: 17
2.1.4 Factors Affecting the Relationship between Exchange Rates and Production Exports 18
2.1.4 Evaluation of Effectiveness and Implications 21
2.2 Theoretical Review 22
2.2.1 Theory of Comparative Advantage 22
2.2.2 Exchange Rate Pass-Through 22
2.2.3 J-Curve Effect 23
2.2.4 Market Structure and Imperfect Competition 23
2.2.3 Theoretical Framework 24
2.4 Empirical Review 24
2.5 Research Gap 28
CHAPTER THREE
METHODOLOGY
3.1 Introduction 29
3.2 Research design 29
3.3 Model specification 29
3.3.1 Description of Variables 30
3.3.2 Apriori Expectations 31
3.3.3 Method of data collection 31
3.4 Technique of Estimation 32
3.5 Model Justification 33
CHAPTER FOUR
DATA ANALYSIS AND INTEPRETATIONS
4.1 Introduction 34
4.7 Test of Hypotheses 41
4.8 Discussion of Findings 43
Findings 43
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary 46
5.2 Conclusion 47
5.3 Recommendations 48
5.4 Limitations of the Study 49
5.5 Future Research Directions 50
APPENDIX 57
Appendix A: Summary Statistics 57
Appendix B: Correlation Matrix 58
Appendix C: Multiple Regression Analysis Results 59
Appendix D: Granger Causality Test Results 60
Appendix E: A Priori Expectations 61
LIST OF TABLES
4.2 Table 1: Summary Statistics of Exchange Rate and Production Exports (1995-2023) 32
4.3 Table 2: Correlation Coefficient Between Exchange Rate and Production Exports 33
4.4 Table 3: Regression Analysis of Exchange Rate on Production Exports 34
4.5 Table 4: Granger Causality Test Between Exchange Rate and Production Exports 35
4.6 Table 5: Volatility Analysis of Exchange Rate and Production Exports 36
Table 4.7: A Priori Expectations and Sources of Data 37
Interpretations: 38
Table 4.1: Multiple Regression Analysis Results 39
Interpretations of Hypotheses Testing: 40
Table A.1: Summary Statistics of Key Variables (1995-2023) 55
Table B.1: Correlation Matrix of Key Variables 56
Table C.1: Multiple Regression Analysis Results 57
Table D.1: Granger Causality Test Results 58
Table E.1: A Priori Expectations and Sources of Data 59
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The Production sector has been the mainstay of the Nigerian economy since Nigeria's independence in 1960. The Production sector has been the target of government policies over time due to its large work to build a country (Adekunle, 2021). The Production sector, like other sectors, is highly affected by price volatility. This is usually related to the import of raw materials and other modern Production equipment in the sector and the export of products. Thus, changes in exchange rate policy through their impact on the real exchange rate have important consequences for domestic prices and economic growth in a country. Real interest rate measures the terms of trade between the trading and non-trading sectors of the economy, giving an indication of the movement of assets (Amasu, 2022).
Before Nigeria's independence in 1960 and until the early 1960s, the majority of exports in the Nigerian economy were mainly Production, accounting for more than 60% of GDP and 70% of total exports. Agriculture is the main source of food and income in Nigeria. Therefore, it is an important part of poverty alleviation and food security measures in Nigeria. Research has shown that the increase in income comes from an increase in productivity and an increase in investment, as both are positively related to income, and the need to improve the Production products in it. Estimates of Production productivity in Nigeria fell between the 1960s and 1980s. In recent years, Nigeria has recovered significantly with annual GDP growth of 8.8% between 2000 and the 2007. However, the Production sector has not been able to grow at par with GDP, reaching 3.7% in 2007 (Ogunjobi, 2022). In 2013, Production production increased by 4.5 percent due to good weather and the continued implementation of the programs created by the Agriculture Program (ATAP) (CBN, 2014).
Exchange rate has long attracted the attention of scholars because of its importance for policy making, especially in an import-dependent economy like Nigeria. The exchange rate contributes to the development of the country by positively influencing the amount of foreign reserves and the level of imports. All economies aim to maintain exchange rate stability in the international market. Therefore, it is very important to monitor the price differences to guide policies in each country (Essien ,2021). In Nigeria, like other African countries, inflation followed the adoption of the structural adjustment program in 1986. The purpose of price reductions is to achieve a significant discount that stimulates demand for domestically produced goods. As a result, the local currency will improve against other currencies. However, the SAP failed due to poor implementation and the goal of maintaining exchange rate stability was not achieved. Since then, economic sectors in Nigeria have been struggling with the problem of price volatility and subsequent changes in commodity prices (Olayide O, 2022).
Exchange rate management is very important because of its volatility and impact on investment decisions. Exchange rate volatility is a major macroeconomic factor in the foreign market, which tends to create investment risk and uncertainty, thus affecting overall output (Akinniran and Olatunji 2018). Therefore, investors and planners are excited about price fluctuations. Abidemi (2019) stated that an increase in exchange rate increases imports and decreases exports, while a decrease in exchange rate is the opposite. A fall in the exchange rate stimulates the consumption of domestic goods in exchange for foreign goods. This leads to a shift in trade to exporting countries. As a result, the devaluation of the currency is beneficial to the economic well-being of the exporting country. Therefore, the exchange rate is very important for economic growth and is the main determinant of international competitiveness (Alaba and Adebayo 2019). To transform the economy and bring it into the developing countries of the world, it is necessary to use the sector that leads to sustainable economic growth and development through foreign exchange policy. An unsustainable tariff policy is detrimental to the growth and development of the economy (Kalu, et al 2019).
According to Joshua 2020, Nigeria's Production and livestock imports in 1970 were about $125 million and exports were $438 million. In these times, the combination of a strong naira against the US dollar and the British pound and a strong Production sector means that exports outnumber imports. By 1980, this trend had changed to $2.1 billion in imports and $445 million in exports. This is also not related to the drop in the exchange rate and ignores the Production sector in favor of the renewable oil sector. In 2016, the situation worsened, with imports at $2.998 billion and exports at $648 million. Between the 1970s and today, many Production projects and policies were implemented with the aim of strengthening and modernizing the sector. National Accelerated Food Production Program (NAFFP) 1972, Production Development Programs (ADPs) 1974, Operation Feeding the Nation (OFN) 1976, River Basin Development Authority (RBDAs) 1976, Green Revolution (GR) 1980, Dept. Food, Roads and Rural Infrastructure (DFFRI) in 1986, National Production Land Development Authority (NALDA) in 1992, National Fadama Development Project (NFDP) in the 1990s, National Economic Empowerment and Development Strategy (Needs) in 1999, National Special Program for Food Security ( NSPFS ) in 2002, Root and Tuber Development Program (RTEP) in 2003, 7 Point Agenda (2007), Bank of Agriculture (BOA) in 2010, Production Transformation Agenda (ATA) in 2011 and many other Production projects represent ongoing operations. of governments to improve the Production sector.
Despite all these initiatives and several macroeconomic policies aimed at increasing the performance of the Production sector, Nigeria remains an importer of Production commodities, especially rice, wheat and sugar (Aladelusi K B 2020). One of the variables that play an important role in the growth of agriculture is price. The price is heavily influenced by the exchange rate. The importance of exchange rates according to Marade 2021 lies in the effect of rates on the input price and the output price. While rates and prices are important for inputs such as fertilizers and machinery, exchange rates and tariffs are more important than farm prices, which are the main incentives for farmers' productivity. He said the questions raised among many others is why Nigeria continues to import Production products despite the availability of human and natural resources that able to help them in their work, why the country does not have the right to produce food even if this sector is not developed. At the export level, whether the macroeconomic policy helps or hinders the country's Production development, what is the effect of the exchange rate on Production products (Ushahemba, 2022).
1.2 Statement of the Problem
The Nigerian Production sector stands as a cornerstone of the nation's economy, providing employment to millions and serving as a vital source of income for rural communities. However, despite its significance, the sector faces numerous challenges, one of the most prominent being the unpredictable nature of exchange rate fluctuations and their implications for Production exports. Nigeria's Production export industry is heavily reliant on international trade, with exports contributing substantially to foreign exchange earnings and economic growth. Yet, the sector remains vulnerable to the adverse effects of currency volatility, which can disrupt export activities, hinder market competitiveness, and threaten the livelihoods of farmers and exporters alike (Joshua Ogunjimi 2020)
Exchange rate fluctuations introduce a considerable level of uncertainty into the Nigerian Production export landscape, impacting various facets of the sector's operations. One of the primary concerns revolves around the volatility of export revenues, wherein sudden shifts in exchange rates can lead to unpredictable changes in the value of exports. This revenue v olatility poses significant challenges for exporters, making financial planning and risk management more difficult and potentially jeopardizing the sustainability of Production export businesses (Jiakepona et al (2024)
The cost of production for Nigerian Production exports is heavily influenced by exchange rate dynamics. Many essential inputs required for Production production, such as fertilizers, pesticides, and machinery, are imported and priced in foreign currencies. Consequently, fluctuations in exchange rates directly impact the cost of these inputs, potentially leading to increased production costs for farmers and exporters. This, in turn, can erode profit margins, diminish export competitiveness, and undermine the sector's long-term viability (Victor et al 2022)
Exchange rate fluctuations affect the competitiveness of Nigerian Production exports in international markets. When the local currency depreciates relative to major trading currencies, Nigerian products become more affordable for foreign buyers, potentially boosting demand and export volumes. However, an appreciation of the local currency can have the opposite effect, making exports more expensive and less competitive compared to products from countries with more stable currencies. The effectiveness of government policies and interventions in mitigating the impact of exchange rate fluctuations on Production exports is another area of concern. While policymakers may implement measures such as currency interventions or export incentives to support the sector, the efficacy of these interventions in addressing the underlying challenges remains uncertain. There is a need for comprehensive assessment and analysis to evaluate the adequacy of existing policies and identify potential areas for improvement (Oluwayemisi Maradeje 2021)
Exchange rate volatility can hinder market diversification efforts for Nigerian Production exporters. The uncertainty surrounding currency movements may discourage exporters from exploring new markets or expanding their presence in existing ones, limiting opportunities for growth and diversification. This lack of market diversification exposes exporters to higher levels of risk and dependency on specific markets, potentially exacerbating the impact of exchange rate fluctuations on their businesses (Sani et al 2020). The resilience of the Nigerian Production export sector in the face of exchange rate fluctuations depends not only on external factors but also on internal capabilities and strategies adopted by stakeholders. Exporters must develop robust risk management practices to mitigate the adverse effects of currency volatility, such as hedging against exchange rate risk or renegotiating contracts to include currency clauses. However, the extent to which exporters can effectively manage currency risk varies, depending on factors such as access to financial instruments and expertise in international trade (Aladelusi K.B 2020).
The impact of exchange rate fluctuations extends beyond the realm of economics, affecting broader societal issues such as food security and rural development. As a significant source of employment and income for rural communities, the Production sector's resilience to currency volatility is crucial for ensuring the livelihoods and well-being of millions of Nigerians. Addressing the challenges posed by exchange rate fluctuations requires a holistic approach that considers the social, economic, and environmental dimensions of Production development. Therefore, it is due to this never-ending problem that has led to this study which is to examine the impact of Exchange Rate fluctuations on Production Export in Nigeria.
1.3 Research Questions
The following research questions are;
(i) What are the effects of exchange rate on the Production Company in Nigeria?
(ii) Does exchange rate have any significant effect on Production Company in Nigeria?
(iii) Is there a causal relationship between exchange rate fluctuation and Production export in Nigeria?
1.4 Objectives of the Study
The main objective of this study is to determine the Impact of Exchange Rate on Nigerian Production Export. Specifically, the objectives are to;
(i) To determine the effect of exchange rate on Production export in Nigeria.
(ii) To determine the trend of Production export within the study period.
(iii) To examine the causal relationship between exchange rate on Production export in Nigeria.
1.5 Research Hypotheses
H01: Exchange rate fluctuation has no significant effect on Production export.
H02: There is no significant difference in the trend of Production export in Nigeria.
H03: There is no causal relationship between exchange rate on Production export in Nigeria.
1.6 Scope of the Study
This study examines the effect of exchange rate on Nigerian Production exports. The research covers a period of 38 years 1985-2023. The variables under this study include exchange rate (EXR), Foreign direct investment (FDI), Production labor (AL) and inflation rate (INF) as the independent variables with Production exports as the dependent variables (AEX). This period was selected based on the availability of data. The study period from 1985 to 2023 encapsulates over three decades of Nigeria's economic history, including significant shifts in policies, economic reforms, and external economic conditions.
The inclusion of diverse economic conditions allows for a more nuanced understanding of the relationship between exchange rates and Production exports over time.
1.7 Significance of the Study
The study investigates the impact of exchange rate fluctuations on Nigerian Production exports. The Production sector is a significant contributor to Nigeria's economy, but it faces challenges, including exchange rate volatility. The study aims to provide insights for policymakers, farmers, and agro-processors to mitigate the negative effects of exchange rate fluctuations. The research reveals that exchange rate fluctuations have a significant impact on Nigerian Production exports, leading to decreased competitiveness, reduced export earnings, and negative effects on the balance of payments. The study also identifies the importance of diversification, policy support, and adaptation strategies for farmers and agro-processors to remain competitive in the global market.
The findings of this study have significant implications for Nigeria's economic growth, food security, and sustainable development. The recommendations provided can inform policy decisions, investment strategies, and business practices in the Production sector. By addressing the challenges posed by exchange rate fluctuations, Nigeria can promote economic diversification, improve livelihoods, and achieve sustainable development goals. This study contributes to the existing literature on the impact of exchange rate fluctuations on Production exports and provides valuable insights for stakeholders in the Production sector. The findings and recommendations of this study can help Nigeria unlock its Production potential, promote economic growth, and achieve sustainable development.
1.8 Organization of the Study
This study composes of five (5) chapters. Chapter one, gives the introduction of the study, statement of the problem, research questions, objectives of the study, research hypotheses, scope and delimitation of the study, significance of the study, operational definition of terms. Chapter two deals with literature review and theoretical framework, where evaluated scholarly literature relevant or to the research problem would be systematically put down.
Chapter three deals with research methodology, research design, population of the study, sample and sampling techniques, method of data collection, and method of data analysis. Chapter four deals with interpretation of results while chapter five deals with summary, conclusion and recommendations.
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