ABSTRACT
This research work is centred on the impact of exchange rate
fluctuation on the Nigeria’s economic growth with special emphasis
on purchasing power of the average Nigeria and the level of
international trade transaction. Without exchange rate the exchange
of goods and services among trading partners will be faced with a lot
of problems, which may virtually narrow it down to trade by barter.
This exchange also is used to determine the level of output growth of
the country. Hence, the rate at which exchange fluctuates calls for a
lot of attention. However, with already existing exchange rate
policies, a constant exchange rate has not been attained. The rate by
which exchange rate fluctuates brings about uncertainty in the trade
transaction, and also the rate of naira has been unleashed and
continues to depreciate. This has resulted to declines in standard of
living of the population increase in costs of production (this is
because most of the raw materials needed by industries are usually
imported), which resulted in cost-push inflation. We made use of
many tests, like the t-statistics table, f-statistic table and the chisquare
etc. When we found out real exchange rate has a positive
effect on the GDP.

CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
the exchange rate is perhaps one of the most widely discussed topic
in Nigeria today. This is not surprising given it’s macro-economic
importance especially in a highly import dependent economy as
Nigeria (Olisadebe, 1995:20). Macroeconomic policy formulation is a
process by which the agencies responsible for the conduct of
economic policies manipulate a set of instrumental variables in order
to achieve some desire objectives.
In Nigeria these objectives include achievements of domestic price
stability, balance of payment equilibrium, efficiency, equitable
distribution of income and economic growth and development.
Economic growth refers to the continuous increase in a country’s
national income or the total volume of goods and services, a good
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indicator of economic growth is the increase in Gross National
Product (GNP) over a long period of time. Economic development on
the overhead implies both structural and functional transformation of
all the economic indexes from a low to a high state (Siyan, 2000:150)
one of the macro –economic variables of importance is the exchange
rate policy country.
Exchange rate policy involves choosing where foreign transaction will
take place (Obadan, 1996). Exchange rate policy is therefore a
component of macroeconomic management policies the monetary
authorities in any given economy uses to achieve internal balance in
medium run. Specifically internal balance mean the level of economic
activity that is consistent with the satisfactory control of inflation. On
the contrary, external or sustainable current account deficit financed
on lasting basis expected capital inflow.
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It is important to know that economic objectives are usually the main
consideration in determining the exchange control. For instance from
1982 – 1983, the Nigerian currency was pegged to the British pound
sterling on a 1.1 ration. Before then, the Nigerian naira has been
devalued by 10%. Apart from this policy measures discussed above,
the Central Bank of Nigeria (CBN) applied the basket of currencies
approach from 1979 as the guide in determining the exchange rate
was determined by the relative strength of the currencies of the
country’s trading partner and the volume of trade with such
countries. Specifically weights were attached to these countries with
the American dollars and British pound sterling on the exchange rate
mechanism (CBN, 1994). One of the objectives of the various macro
– economic policies adopted under the structural adjustment
programme (SPA) in July, 1986 was to establish a realistic and
sustainable exchange rate for the naira, this policy was
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recommended in 1986 by the International Monetary Fund (IMF). On
exchange mechanism and was adopted in 1986.
The key element of structural adjustment programme (SAP) was the
free market determination of the naira exchange rate through an
auction system.
This was the beginning of the unstable exchange rate; the
government had to establish the foreign exchange market (FEM) to
stabilize the exchange rate depending on the state of balance of
payments, the rate of inflation, Domestic liquidity and employment.
Between 1986 and 2003, the federal Government experimented with
different exchange rate policies without allowing any of them to
make a remarkable impact in the economy before it was changed.
This inconsistency in policies and lack of continuity in exchange rate
policies aggregated unstable nature of the naira rate. (Gbosi,
1994:70).
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1.2 STATEMENT OF THE PROBLEM
The exchange rate of the naira was relatively stable between 1973
and 1979 during the oil boom er (regulatory require). This was also
the situation prior to 1990 when agricultural products accounted for
more than 70% of the nation’s gross domestic products (GDP) (Ewa,
2011:78).
However, as a result of the development in the petroleum oil sector,
in 1970’s the share of agriculture in total exports declined
significantly while that of oil increased. However, from 1981 the
world oil market started to deteriorate and with it’s economic crises
emerged in Nigeria because of the country’s dependence on oil sales
for her export earnings. To underline the importance of oil export to
Nigerian economy, the gross national product (GNP) fell from $76
billion in 1980 to $40 billion in 1996, a number of economic growth
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became negative as result of the adoption of structural adjustment
programme (SAP).
This major problem which this study is designed to solve is whether
the exchange rate has any bearing on Nigerians economic growth an
d development. While some Economist dispute the ability of change
in the real exchange rate to improve the trade balance of developing
countries (Hinkle, 1999:21) because of elasticity of their low export,
others believe that structural policies could however change the longterm
trends in the terms of trade and the prospects for export led
growth. Instabilities of the foreign exchange rate is also a problem to
the economy.