Long Run Asymmetric Effects of Exchange Rate Variations on Nigerian Bilateral Trade Balances (Testing for the J-Curve Hypothesis)

Abstract

This study has examined the long run effects of exchange rate and output of selected regions, on Nigerian trade balance. Trade balance and exchange rate have crucial role to play in today’s global economy and are both important in economic growth and stability. Both the symmetric and asymmetric effects are carried out in order to capture the real effect of exchange rate and also to test for the J-curve, a phenomenon refers to the trend of a country’s balance of trade following a devaluation or appreciation. Estimation technique is based on the traditional ARDL and NARDL models. Although, a long run co-integrating relationship and convergence to long run equilibrium exist in the models set, but the results show a degree of ambiguity in Nigerian trade balance determinants relative to her trading partners. This may be due to seemingly shambolic Nigerian macro economy. The suggestion offered is that sound macroeconomic framework is essential for Nigeria since the country appears to possess a significant trade advantage over most developing countries. Therefore, prudential macroeconomic policies are required to maintain stable macroeconomic framework.
Keywords: Nigerian trade balance, asymmetric effect, symmetric effect, exchange rate