EXCHANGE RATE STABILITY AND EXPORT PERFORMANCE

CHAPETR ONE

INTRODUCTION 

1.1        Background of the study

1.2        Statement of problem

1.3        Objective of the study

1.4        Research Hypotheses

1.5        Significance of the study

1.6        Scope and limitation of the study

1.7       Definition of terms

1.8       Organization of the study

CHAPETR TWO

2.0   LITERATURE REVIEW

CHAPETR THREE

3.0        Research methodology

3.1    sources of data collection

3.3        Population of the study

3.4        Sampling and sampling distribution

3.5        Validation of research instrument

3.6        Method of data analysis

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS AND INTERPRETATION

4.1 Introductions

4.2 Data analysis

CHAPTER FIVE

5.1 Introduction

5.2 Summary

5.3 Conclusion

5.4 Recommendation

Appendix

 

Abstract

Exchange rate is the price of one currency in terms of another currency. Exchange rate stability has to do with government actions in order to stabilize exchange rate so as to increase export in Nigeria especially export of primary products (agricultural produce) over the years, Nigeria has adopted various exchange rate regimes ranging from fixed exchange regime to floating exchange regime. The main purpose of this work is to determine to what extend does the volatility and risks of exchange rate affect exports of agricultural produce in Nigeria. To do this, the classical Linear Regression Model is applied and the ordinary least square econometric technique is also used to estimate the impact of exchange rate on agricultural export trade earning. The variables used are export trade earnings as the dependent variable and exchange rate, interest rate, inflation and agricultural output as the independent variables

 

 

 

 

 CHAPTER ONE

INTRODUCTION

• Background of the study

For clarity, it is pertinent that we start by defining the subject of this work. Exchange rate is the price of one currency in terms of another currency. It is the price of one foreign currency in terms of the domestic currency. It sends signals that affect consumption and investment decisions and therefore influences both the composition and value of aggregate demand and supply (CBN: Contemporary Economic Policy issues, 2003). Exchange rate stability is therefore commitment of the government to allow the macro-economic policies to control the balance of payment. The government may fix the exchange rate policies either by legislation or by intervention in the Nigerian currency market. According to Johnson (1984), the case for exchange rate stability is part of a more general argument for National Economic Policies conducive to international economic integration. From a broader perspective, for exchange rate to be stable is to encourage international trade by making price of goods involved in trade more predictable and to promote economic integration. At the individual level, such decisions are usually taken in order to improve future consumption prospects, investment and because exchange rate involves an increase in wealth of a nation which is desirable, it then influences the society. The Agricultural sector in the Nigeria context embraces all the sub-sector of primary industry, they include; farming (which include livestock, application of modern implements such as tractors and chemical), Anyanwu, (1997). Before independence, the reliance of this economy on agricultural income led to the establishment of marketing boards with monopolist powers to buy these crops from farmers and sell them overseas. The role of marketing board was very important especially in stabilizing farm incomes and generating funds for executions of development projects in the country.
The exchange rate stability has a lot of contributions to the volume of export and the level of the domestic production. Although given that agricultural output is influenced by prices among other factors, the depreciation of the naira and the abolition of the commodity boards were expected to result in an overall increase in production of exports. According to Kwanashie et al (1994), the degree of fluctuation in prices is a major determinant of the changes in earnings given the trend in output over the years. But the exchange rate when applied in conjunction with other macro-economic policies was expended to lead to the achievement of the goals of price stability, improved and sustained economic growth, reduced unemployment, balance of payment stability and increased agricultural exports. A stable exchange rate system would help
in meeting these goals, but in case when it is unstable, these achievements become difficult and often impossible. According to economic indicators, the monetary Approach of Exchange rate determination confirmed exchange rate as a function of relative shifts in money, inflation rate or its proxy and domestic output between an economy and the trading partner. More so, the exchange rate of any counting is determined by the number of factors which include the state of the economy, the competitiveness and the volume of export, the level of
domestic production of foreign reserve which is the nation worth, because of its role as the determinant of the relative price of tradable to non-tradable, it is a major instrument affecting the structural change in an economy. Exchange rate policies in Nigeria as in other countries are often sensitive and controversial mainly because the kind of structural transformation required such as reducing imports or expanding agricultural exports, invariably imply a depreciation of the nominal exchange rate. In the quest for stability of exchange rate, the Nigeria Monetary authorities tried several bidding system, including the Dutch Auction system (DAS) and the Marginal Rate System. An attempt to ensure viability in the market led to many amendments of the rules, intervention by Central Bank of Nigeria (CBN), and opening of different exchange windows for operation during this period. Despite all these fluctuations, rate of exchange continued to be an issue of concern to the authorities. This is as a result of causes of changes in the exchange rate which are as follows;

Changes in prices

Capital flows

Changes in exports and imports

Political conditions

Influence of Banks

This formed the basis of this study “Exchange Rate Stability and Export performance. The case of Agricultural produce in Nigeria, (1978-2010)

1.2 STATEMENT OF THE PROBLEM

in the most developing country in general and Nigeria in particular, some of the economic tools used for both planning and implementation of the economic programme are normally based on educated guesses or on models which have been designed for other countries. The direction of this work
will be to understand the cardinal reasons for the inability of Nigeria to maintain a favourable external reserve. What factors capture most the exchange rate instability on export performance in Nigeria? This will show succinctly the conformity of exchange rate in Nigeria to a priori economic expectations. Economic theory informs that decision to exchange rates depend demand and supply of foreign exchange, that is change in income earnings of export crop producers which come as a result of either increase or decrease in International World price of exports or devaluation of currency and subsequent prices. Such exchange rate change may lead to a major decision in the future output if they are unpredictable and erratic. How true these economic assertions in Nigeria exchange rate profile are becomes the question

 

• OBJECTIVE OF THE STUDY

The objectives of the study are;

1. Evaluate the nature and extent of the impact of exchange rate stability on agricultural exports in Nigeria.
2. To ascertain the relationship between exchange rate stability and export performance
3. To ascertain the effect of exchange rate stability and export performance of agricultural produce in Nigeria
4. To ascertain the impact of exchange rate stability on the Nigeria economy
   • RESEARCH HYPOTHESES

For the successful completion of the study, the following research hypotheses were formulated by the researcher;

H₀: there is no relationship between exchange rate stability and export performance of agriculture produce in Nigeria

H₁: there is relationship between exchange rate stability and export performance of agriculture produce in Nigeria

H₀²: there is no impact of exchange rate stability on the Nigeria economy

H₂: there is impact of exchange rate stability on the Nigeria economy

• SIGNIFICANCE OF THE STUDY

One of the most dramatic events in Nigeria over the past decade was the devaluation of the Nigerian naira with the adoption of a structural Adjustment programme (SAP) in 1986. Significantly, this depreciation resulted in changes in the structure and volume in Nigeria’s agricultural export as empirically determined by many research (Oyejide, 1986; Ihimodu 1995; Osuntogun et al 1993; World Bank, 1994). The depreciation also increased the prices of agricultural exports and studies have shown a marked increase in volume of agricultural exports over the years. Appreciation of a country’s real exchange rate caused by the sharp rise in export of a booming resources sector like oil draws capital and labour away from a country’s manufacturing and agricultural sectors, which can lead to a decline in export of agricultural goods and inflate the price of non-tradable goods (Corden 1982) and Corden and Nearly (1984) however, the volatility, frequency and instability of the exchange rate movements since the beginning of the floating exchange rate raise a concern about the impact of such movements on agricultural trade flows.

• SCOPE AND LIMITATION OF THE STUDY

The scope of the study covers exchange rate stability and export performance. The researcher encounters some constrain which limited the scope of the study;

1. a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
2. b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
3. c) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities.

1.7 DEFINITION OF TERMS 

 EXCHANGE RATE: In finance, an exchange rate is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in relation to another currency.

STABILITY: the quality, state, or degree of being stable: such as. a: the strength to stand or endure : firmness. b: the property of a body that causes it when disturbed from a condition of equilibrium or steady motion to develop forces or moments that restore the original .

EXPORT PERFORMANCE: Export performance is the relative success or failure of the efforts of a firm or nation to sell domestically-produced goods and services in other nations.

1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study

 

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