Exchange rate management and economic development in Nigeria

This paper analyzed the impact of different phases of exchange rate management on economic development in Nigeria. Two distinct phases of exchange rate management namely, fixed (1970-1986) and floating (1987-2016) were used as proxies for exchange rate management. GDP per capita was adopted as proxy for economic development. The study adopted the estimation method of ordinary least squares. Regression estimates for the full sample (1970-2016), fixed regime (1970-1986) and floating regime (1987-2016) show exchange rate as a significant impediment to development, with the strongest negative impact coming from the floating exchange rate regime. The effect of inflation on development was significant and positive in both the fixed and floating exchange regime samples but was negative and non-significant in the full sample. With regard to interest rate, the full sample result shows significant positive impact on development. For the fixed regime sample, interest rate has non-significant negative impact but this negative impact became significant during the liberalized or floating regime. The impact of external debt on development was positive and non-significant across all the samples. Based on the above findings, we conclude that irrespective of policy adopted, exchange rate is a major factor in the planning and implementation of development-oriented programmes and policies in a developing nation like Nigeria. However, the impact is far more severe when developing nations adopt liberalized exchange rate policies without first developing adequate industrial infrastructure to support a robust domestic production capacity.