The Effects of Exchange Rates Volatility on the growth of Gross Domestic Product in Nigeria

The study is an empirical investigation of the effects of real exchange rates volatility on the growth of gross domestic product in Nigeria. Annual data was employed covering the period 1960-2012, on the relevant variables such as real exchange rates, gross domestic product, inflation, import and export. A review of the literature reveals that foreign exchange rates movements can either have a positive or a negative effect on the gross domestic product. The empirical analysis began with testing for stationarity of the variables (Unit root test) by using the Augmented Dickey-Fuller (ADF) test procedure and the Phillips Perron test, after the stationary of the variables was established, it was followed by the cointegration estimation, vector error correction and the Granger-Causality test. The result of the estimation suggested that to maintain a positive growth in real GDP, the domestic currency must depreciate in value. The estimation also indicated a positive relationship between export and real GDP, while a negative relation between real GDP and import. Keywords: Foreign exchange, Gross Domestic Product, Co-integration, Vector Error Correction mode