EXCHANGE RATE AND BALANCE OF PAYMENTS POSITION IN NIGERIA

Transcription

1 EXCHANGE RATE AND BALANCE OF PAYMENTS POSITION IN NIGERIA Anthony Ilegbinosa Imoisi College of Social & Management Sciences, McPherson University, Seriki Sotayo, P.M.B. 2094, Abeokuta, Ogun State Abstract The study examines exchange rate variations and balance of payments position in Nigeria under regulated and deregulated periods. Over the years, attaining a realistic exchange rate and improving the balance of payments position in Nigeria are among the macroeconomic objectives of the Federal Government. The nation s balance of payments position has been under constant pressure since the 1980s as a result of several factors such as fluctuations in the prices of crude oil, poor performance of non-oil exports, high taste for foreign goods and services, etc. The main objective of this study is to analyse policies initiated by the Federal Government of Nigeria in attaining a realistic exchange rate and improving the balance of payments position. To achieve this objective, the econometric techniques of ordinary least squares, co-integration and error correction mechanism were used to analyze the sourced data. The results showed that exchange rate had more impact on the balance of payments position during the deregulated period than the regulated period in Nigeria. Based on the results, the study recommends that to improve the balance of payments position in the country, governments should increase their capital expenditure; exports should be stimulated and diversified in the non-oil sector such as agriculture and manufacturing sector; a contractionary monetary policy should be implemented to discourage importation of luxurious goods and the Naira should be devalued to make exports cheaper in the international market. Keywords: Exchange rate, balance of payments, devaluation, regulated and deregulated periods Introduction A nation s policy on foreign exchange is derived from the observed macroeconomic objectives to be attained and the likely trend of growth in the economy. Although the acknowledged objectives of foreign exchange policy remains the attainment of a favourable balance of payments position as well as the achievement of a realistic exchange rate; on the other hand, monetary policy concentrates on ensuring price stability whereas fiscal policy highlights a non-inflationary tax base that would generate sufficient revenue for the government and ensure fiscal discipline. The foreign exchange market in Nigeria is very wide on the demand side and very narrow on the supply side. The market is extremely demand driven and is characterized by the non-adherence to laws, rules and regulations guiding the market by participants in the market. Due to this, it encounters the problem of exchange rates misalignment, prevalence of arbitrage between the official and unofficial rates, increasing interest and inflation rates, exchange rate mismanagement and reduction in the nation s foreign exchange reserves (Odusola, 2006). These alterations have negatively affected the exchange rate of the country s currency in relation to other currencies of the world as well as the balance of payments position of the Nigerian economy (Aniekan, 2013). Following the end of the oil boom period when the Nigerian economy benefited from a steady balance of payments surplus, her balance of payments has been fluctuating between positions of surplus and deficit. Nigeria has recorded well over fifteen deficits in her balance of payments account. These deficits were recorded in 1962, 1963, 1964, 1965, 1966, 1976, 1977, 1981, 1982, 1983, 1986, 1988, 1992, 1994, 1995, 1996, 1998, 1999, 2002, and 2003 (CBN 2010; 2011). The balance of payments problem has become a binding constraint in the realization of the federal government of Nigeria macroeconomic objectives. Since the 80s, the nation s balance of payments position has been under constant pressure and this has been part of the major macroeconomic problem the nation has been dealing with.so many reasons have being suggested for this excessive pressure on the balance of payments position in the economy. According to Gbosi (2002), these reasons are as a result of fluctuations in the prices of crude oil, poor performance of the non-oil export, high taste for foreign goods and services, continuous fall in the country s foreign exchange and ineffective manufacturing sector.

2 Theoretical literature In an open economy, the national income accounting framework shows income (Y) as the sum of consumption (C), investment (I), Government Expenditure (G) and Exports less Imports (X - M). Y = C + I + G +(X-M) (1) Where C + I + G are often referred to as absorption and are represented as domestic absorption. At this point, it is denoted as A, while X - M is identified as balance of trade. Therefore, equation (1) is restated as follows Y = A + (X - M) (2) Y A = (X - M) (3) Equation (3) implies that each time domestic absorption A is greater than the domestic output (Y), imports will be greater than exports. It is either A > Y or M > X Consequently, whenever there is an imbalance in a nation s internal and external sectors, two types of polices are set up. The first is to increase the total production level until it is equal to total absorption. The first policy is attained by means of changing the structure of relative prices such that the prices of imports become more expensive while the prices of the domestic goods become less expensive. This alteration in the structure of relative prices has the effect of reducing imports while it increases the demand for home goods used in domestic production. This is usually called the expenditure - switching policies (Jhigan, 2006). Conversely, to make sure there is a cut in absorption, two things ought to be done; first, is to increase the relative price of imports to that of domestic goods as well as ensuring a contraction in the monetary and fiscal policies. This will guarantee a fall in demand generally. Thus, under a regime of fixed exchange rate, the change in the make-up of the relative prices is attained due to devaluation of nominal exchange rate. Therefore, if the government wants to protect the par value, she cuts down the level of the nation s external reserve to pay for the trade-off. The cutting down of the external reserve reduces the domestic monetary base and consequently brings about a fall in the money supply and hence, reduces the total demand. On the other hand, under the flexible exchange rate, the exchange automatically happens by means of exchange rate depreciation. This is because the demand for imports rises given the stock of foreign exchange reserves, the price of foreign exchange increases, hence the exchange rate depreciates. Devaluation of the exchange rate will succeed if and only if the addition of export and import elasticity of demand is greater than unity, Marshall-Lerner condition (Speller, 2006). Thus, under a flexible exchange rate the following outcomes are realized. Where the increase in absorption is as a result of increase in supply of foreign exchange, it will result in the fall of the price of foreign exchange so that the nominal exchange rate depreciates automatically. According to Imoisi (2012), the depreciation in exchange rate will alter the framework of the relative prices in favour of domestic goods and services but against the fall in import and rise in exports; that is, the terms of the trade worsen and the gain from trade reduces. Nevertheless the increase for domestic goods and services raises the gross domestic product and hence domestic income. As income rises, demand for money also rises therefore, increasing the rate of interest. The increase in the rate of interest reduces domestic investment expenditure and creates an initial outflow of capital, which leads to an appreciation of the domestic currency and consequently corrects the decline in the terms of trade that would have risen from the initial exchange rate depreciation (Obadan, 2006). Therefore, under the regime of flexible exchange rates, equilibrium in the balance of payments is restored through the exchange rate, the demand for money and the interest rate. While under the regime of fixed exchange rate, the federal government is compelled to rely on the par value of the exchange rate and therefore, pay for the deficits by reducing the external reserves. This leads to a decrease in the monetary base of the economy and consequently, a reduction in the money supply. As the money supply reduces, the interest rate increases which forces down both the rate of investment and expenditure on consumption. As a result of this, the level of absorption and imports will fall. Empirical literature review Over the years, several researches have been carried out on the management of exchange rate on balance of payments position. These researches can be split into two separate philosophies:

3 a. The researches that favour exchange rate overvaluation on Balance of Payments position; and b. The researches that favour exchange rate devaluation on Balance of Payments position. Researches that uphold overvaluation of exchange rate on balance of payments position include: Agene (1991), Chowdhury (1999), Beatrice (2001), Dubas (2009), etc. For instance, Agene (1991) findings back the overvaluation of the rate of exchange in improving economic growth. In Papua Guinea, Chowdhury (1999) found out that overvaluation of the country s rate of exchange enhances her balance of payments position. Also, Beatrice (2001) supported an overvaluation of the rate of exchange as a way of realizing a favourable balance of payments position in Zambia. In addition, Dubas (2009) results showed that overvaluation of the rate of exchange will enhance the current account of the balance of payments position without major freedom in imports. Researches that supported devaluation of the rate of exchange as a universal remedy to a favourable balance of payments position include: Anifowose (1994), Cooper (1978), Dufrenot and Yehoue (2005), Khan and Lizonda (1987), Onoh (1982), Patel & Srivastava (1997), etc. For instance, Anifowose s (1994) findings encouraged the devaluation of the rate of exchange of the Naira as an important solution to the deficits in Nigeria s balance of payments position. Also, Onoh (1982) empirical findings maintain that devaluation of the exchange rate of the Naira is a suitable tool for fixing disequilibrium in Nigeria s balance of payments position and promoting the activities of the export sector of the economy. Patel & Srivastava (1997) were of the opinion that devaluation of the rate of exchange of the Indian currency (rupee) is an important factor that determines favourable balance of payments position in India. Furthermore, Khan and Lizonda (1987) discovered that less developed nations with deficits in their balance of payments position ought to devaluate their currencies to bring about changes in their balance of paments position. Dufrenot and Yehoue (2005) in their research discovered that devaluation of exchange rate have an important impact on the balance of payments position because it improves the external reserves of the countries carrying out the devaluation of their currencies. In addition, Cooper (1978) discovered that devaluation of a country s currency increases exports and reduces imports, which enhances the balance of payments position of the country. Method of study This section is concerned with the method by which this study is carried out. To this end the research design, sources of data, method of data collection and model specification were discussed. Research design The research adopted a quasi experimental design. The reason is that it analyses the impact of two or more independent variables simultaneously on the dependent variable and strengthens the validity of this study. The research is an empirical analysis on the impact of exchange rate variations on balance of payments position in Nigeria, using annual time series from secondary sources for the period The research carried out a comparative analysis between two policy periods (the period of fixed exchange rate regime and the period of flexible exchange rate regime). In order to do this, it employed the Ordinary Least Square (OLS, the Johansen s Co-integration test and the Error Correction Model (ECM) in estimating the relationship between the dependent variable (Balance of payments) and the independent variables (exchange rate, balance of trade, money supply and government expenditure). Also, the study employed the Chow test in testing for the stability of the coefficients to know the point of structural break; hence, it tells us if the two time periods regression are different or not. Model specification The fundamental relationships between the dependent variable and independent variables are specified as follows: Balance of payments function BOP = f (ER, BOT, M1, GEX) (4) Where: BOP = Balance of Payments ER = Exchange Rate BOT = Balance of Trade M1 = Money Supply GEX = Government Expenditure The functional relationship between the dependent variable (BOP) and independent variables (ER, BOT, M1, and GEX) is specified in linear and log linear form. The choice of a version is based on the goodness of fit of the regression result, precision of the multiple regression coefficients and a tolerable level of multicollinearity. Thus, the linear and log

4 linear specification of our model in equation 3.1 above is stated as follows: Linear Specification of the Model BOP = a 0 + a 1 ER + a 2 BOT + a 3 M1 + a 4 GEX + U (5) Log Linear Specification of the Model Log BOP = Loga 0 + a 1 LogER + a 2 LogBOT + a 3 LogM1 + a 4 LogGEX + U (6) Where BOP, ER, BOT, M1 and GEX are as defined for equations 3.1 above, a 0 = the constant term, U = Random/Error Term, a 1, a 2, a 3, and a 4 are parameter estimates. The apriori expectation of these estimates is as follows: a 1 < 0, a 2 < 0, a 3 > 0, a 4 < 0. Analysis of regression results This study analyzed data collected on two models (one during regulation and one during deregulation). From our analysis, the log linear regression result of the Balance of Payments model for the regulated period ( ) and the deregulated period ( ) gave a better result than the linear regression result based on the goodness of fit, precision of the multiple regression coefficients, degree of autocorrelation and a tolerable level of multicollinearity. Thus, it was adopted for our analysis. The log linear results are shown below: Table 1: Log Linear Regression Result of the BOP Model for the Regulated Period ( ) Variable Coefficient T-statistic Probability C Log (ER) Log (BOT) Log (M1) Log (GEX) R 2 = 0.036; Adjusted R 2 = ; F-Statistics = 0.199; D.W = Source: Computed Result E-views 7.1 Table 2: Log Linear Regression Result of the BOP Model for the Deregulated Period ( ) Variable Coefficient T-statistic Probability C Log (ER) Log (BOT) Log (M1) Log (GEX) R 2 = 0.252; Adjusted R 2 = 0.235; F-Statistics = 2.992; D.W = Source: Computed Result E-views 7.1 From the results above, the R 2 for the regulated period was 0.036, while that of the deregulated period was The F statistic for the regulated period was 0.199, while that of the deregulated period was Also from the results, all the variables under consideration for both the regulated and deregulated periods are insignificant at 5% level. This may be informed by the characteristics of time series data which are usually non-stationary and spurious. Thus, there is the need for a stationary test to eliminate the unit-root problems associated with time series data. Table 3: Unit Root Test Results of the BOP Model for the Regulated Period ( ) Variables ADF Test 1% Critical 5% Critical 10% Critical Order of Statistic level level level Integration D(Log(BOP),2) D(Log(ER),2) D(Log(BOT),2) D(Log(M1),2) D(Log(GEX),2) Source: Computed Result - E-views 7.1

5 The unit root test reported in table 3 above shows that all the variables in the Balance of Payments model for the regulated period could not attain stationarity at ordinary level. However, due to further differencing they attained stability at first difference. The long-run relationships among the variables were examined after the stationarity test using Johansen (1997) co-integration framework. The results of the Johansen co-integration test are reported as follows: Table 4: Johansen Co-integration Test Result of the BOP model for the Regulated Period ( ) Series D(Log(BOP),2) D(Log(ER),2) D(Log(BOT),2) D(Log(M1),2) D(Log(GEX),2) Lags interval (in first differences): 1 to 1 Hypothesized Eigenvalue Max-Eigen 0.05 Critical Prob** No of CE(s) Statistic Value None* At most 1* At most 2* Source: Computed Result - E-views 7.1 The result above indicates that there exist three (3) co-integrating equations which satisfy the condition for fitting in the error correction model (ECM). Table 5 below shows the result of ECM model for the Balance of Payments position in Nigeria during the regulated period ( ) Table 5: The Error Correction Model of the BOP model for the Regulated Period ( ) Variable Coefficient T-statistic Probability C D(LOG(BOP(-1))) D(LOG(BOP(-2))) D(LOG(ER)) D(LOG(ER(-1))) D(LOG(BOT(-2))) D(LOG(M1(-1))) D(LOG(M1(-2))) D(LOG(GEX(-2))) ECM(-1) R 2 = 0.69; Adjusted R 2 = 0.51; F statistic = 38.38; Durbin Watson = 2.38 Source: Computed Result - E-views 7.1 The long run result of the balance of payments model for the regulated period ( ) in table 5 shows that Exchange Rate deviated from our apriori expectation with a positive sign. However it is statistically significant at 5% level. This implies that a fall in the Exchange Rate of the Naira in relation to the U.S dollars (Appreciation) significantly reduced Balance of Payments deficits during the period of this study. It should be noted that this direct relationship between Exchange Rate and Balance of Payments might not be unconnected with the increase in the demand for Nigeria s crude oil in the 1970s in the international market as a result of the oil crisis of (Arab embargo). This increase in the demand for Nigeria s crude oil raised the quantity of crude oil exported and its price. For example, in 1970, the total exports of crude oil was 383,455 thousand barrels at U.S$2.4 per barrel; it latter increased to 627,639 thousand barrels exported in 1973 at U.S$4.0 and latter crude oil export rose to 656,261 at U.S$11.3 in 1975 (NNPC, Nigerian Oil Industry Statistical Bulletin 1983). Balance of trade complied to our apriori expectation with a negative sign. It is also statistically significant at 5% level. This implies that a rise in the Balance of Trade position reduced Balance of Payments deficits while a fall in the Balance of Trade position increased the Balance of Payments deficits during the period of this study. The increase in the demand for Nigeria s crude oil in the 1970s as a result of the oil crisis during (Arab Embargo), may have accounted for the rise of Exports over Imports during this period. Increased Exports of crude oil generated more revenue for the country, increased government expenditure, and stimulated investment which are important for reducing Balance of Payments deficits.

6 Money Supply complied with our apriori expectation with a positive sign. It is also significant at 5% level. Increase in Money Supply, reduces interest rates, stimulates investments, put more money in the hands of people, increases the demand for imports and thus, increases the Balance of Payments deficits during the period of this study. The compliance of this variable with our apriori expectation may be attributed to the high export earnings of crude oil in the 1970s. From our result, Government Expenditure complied with our apriori expectation by bearing a negative sign. It is also not significant at 5% level. This implies that increase in Government Expenditure reduced Balance of Payments deficits while a fall in Government Expenditure increased Balance of Payments deficits during the period of this study. Increased Government Expenditure on capital projects and social over heads stimulates investment, production and economic growth which are key ingredients for reduction of Balance of Payments deficits. The rise in Government Expenditure due to the increase in the demand, exports and prices of Nigeria s crude oil in the 1970s may have accounted for this result. The coefficient of determination (R 2 ) of 0.69 indicated that 69% of the total variation in the Balance of Payments model is explained by Exchange Rate, Balance of Trade, Money Supply and Government Expenditure during the period of this study. This implies that Exchange Rate, Balance of Trade, Money Supply and Government Expenditure had serious implication for the Balance of Payments position in Nigeria during the period of this study. Also, the Durbin Watson statistic of 2.38 shows that serial correlation is minimal, while the F statistic of indicates that the overall Balance of Payments model is statistically significant. Finally, the correctness of the sign of the Error Correction Model and its significance at 5% level reveals that the Balance of Payments model adjusts speedily to long run dynamics Table 6: Unit Root Test Results of the BOP Model for the Deregulated Period ( ) Variables ADF Test 1% Critical 5% Critical 10% Critical Order of Statistic level level level Integration D(Log(BOP),2) D(Log(ER),2) D(Log(BOT),2) D(Log(M1),2) D(Log(GEX),2) Source: Computed Result - E views 7.1 The unit root test reported in table 6 above shows that all the variables in the Balance of Payments model for the deregulated period could not attain stationarity at ordinary level. However, subjecting the variables to further differencing made them to attain stability at first difference. The long-run relationships among the variables were examined after the stationarity test using Johansen (1997) co-integration framework. The results of the Johansen co-integration test are reported as follows: Table 7: Johansen Co-integration Test Result of the BOP model for the Deregulated Period ( ) Series D(Log(BOP),2) D(Log(ER),2) D(Log(BOT),2) D(Log(M1),2) D(Log(GEX),2) Lags interval (in first differences): 1 to 1 Hypothesized Eigenvalue Max-Eigen 0.05 Critical Prob** No of CE(s) Statistic Value None* At most 1* At most 2* Source: Computed Result E views 7.1 The result above indicates that there exist three (3) co-integrating equations which satisfy the condition for fitting in the error correction model (ECM). Table 8 below shows the result of ECM model for the Balance of Payments position in Nigeria during the deregulated period ( )

7 Table 8: The Error Correction Model of the BOP model for the Deregulated Period ( ) Variable Coefficient T-statistic Probability C D(LOG(ER)) D(LOG(ER(-2))) D(LOG(BOT)) D(LOG(BOT(-2))) D(LOG(M1(-2))) D(LOG(GEX(-2))) ECM(-1) R 2 = 0.87; Adjusted R 2 = 0.82; F statistic = 39.80; Durbin Watson = 2.09 Source: Computed Result - E-views 7.1 The Error Correction Model of the Balance of Payments model reported in table 8 above for the deregulated period shows that Exchange Rate complied with our apriori expectation by bearing the negative sign. It is also significant at 5% level. This implies that a rise in the Exchange Rate of the Naira in relation to the U.S. dollars (Depreciation) reduced the Balance of Payments deficits, while a fall in the Exchange Rate of the Naira in relation to the U.S. dollars (Appreciation) increases the Balance of Payments deficits. The compliance of this variable to our apriori expectation may be attributed to the demand elasticity of our exports, which are mostly primary products. This view is supported by Jhigan (2006), who opined that for Balance of Payments deficits to be reduced in most third world countries, their currencies should be depreciated because most of their exports are primary product which have elastic demand in the international market. Balance of Trade complied to our apriori expectation with a negative sign. It is also statistically significant at 5% level. This implies that an increase in the Balance of Trade reduced Balance of Payments deficits while a fall in the Balance of Trade increased the Balance of Payments deficits during the period of this study. The increase in the demand for Nigeria s Exports as a result of the depreciation of the Naira in relation to the U.S dollars may have accounted for the rise of Exports over Imports during this period. Increased Exports of goods produced in Nigeria generated more revenue for the country, increased government expenditure, and stimulated investment which are important for reducing Balance of Payments deficits. Money Supply complied with our apriori expectation with a positive sign. It is also significant at 5% level. Decreases in Money Supply, reduces interest rates, reduces investments, reduces the amount of money in the hands of people, decreases the demand for imports and thus, decreases the Balance of Payments deficits during the period of this study. The compliance of this variable with our apriori expectation may be attributed to the tight or contractionary monetary and credit policy measures by the Central Bank of Nigeria in order to ensure Exchange Rate stability. This view is supported by Anyanwu (1997), who opined that the CBN adopted a tight monetary and credit policy measures in 1995 to complement a disciplined fiscal policy in order to reduce inflationary pressures, Balance of Payments deficits and ensure exchange rate stability. From our result, Government Expenditure complied with our apriori expection by bearing a negative sign. It is also significant at 5% level. This implies that increase in Government Expenditure reduced Balance of Payments deficits while a fall in Government Expenditure increased Balance of Payments deficits during the period of this study. Increased Government Expenditure on capital projects and social over heads stimulates investment, production and economic growth which are key ingredients for reduction of Balance of Payments deficits. The rise in Government Expenditure due to the increase in the demand for our exports as a result of the depreciation of the Naira in relation to the U.S dollars may have accounted for this result. The coefficient of determination (R 2 ) of 0.87 indicated that 87% of the total variation in the Balance of Payments model is explained by Exchange Rate, Balance of Trade, Money Supply and Government Expenditure during the period of this study. This implies that Exchange Rate, Balance of Trade, Money Supply and Government Expenditure had high implication for the Balance

8 of Payments position in Nigeria during the period of this study. This is confirmed by the significance of all the independent variables such as Exchange Rate, Balance of Trade, Money Supply and Government Expenditure. Also, the Durbin Watson statistic of 2.09 shows that serial correlation is minimal, while the F statistic of indicates that the overall Balance of Payments model is statistically significant. Finally, the correctness of the sign of the Error Correction Model and its significance at 5 percent level reveals that the Balance of Payments model adjusts speedily to long run dynamics. Table 9: Structural or Parameter Stability Test BOP Model Chow Breakpoint Test: 1986 Null Hypothesis: No breaks at specified breakpoints Varying regressors: All equation variables Equation Sample: F-statistic Prob. F(5,43) Log likelihood ratio Prob. Chi-Square(5) Wald Statistic Prob. Chi-Square(5) Source: Computed Result E views 7.1

9 Table 9 above indicates that the regressions in the two time periods are different given the significance of the F-statistics. This implies that the relationship between Balance of Payments and Exchange Rate has undergone a structural change in Nigeria over the period Findings The Balance of Payments (BOP) model for the regulated period indicated that only government expenditure was not significant at 5% level while for the deregulated period all the explanatory variables were significant at 5% level The results also revealed that 87% of the total variation in the Balance of Payments model was explained by Exchange Rate, Balance of Trade, Money Supply and Government Expenditure during the deregulated period, while for the regulated period about 69% of the total variation in the Balance of Payments model was explained by Exchange Rate, Balance of Trade, Money Supply and Government Expenditure (Independent variables) Also, the result revealed a high Adjusted R 2 of 0.82 or 82 percent during the deregulated period while that of the regulated period was 0.51 or 51 percent. These findings also show that Exchange Rate variations had serious implication on Balance of Payments position during the deregulated period than the regulated period. All the explanatory variables (Exchange Rate, Balance of Trade, Money Supply and Government Expenditure) in the Balance of Payments model appeared with their appropriate signs during the deregulated period, while for the regulated period, while for the regulated period, apart from Exchange Rate, the other explanatory variables appeared with their appropriate sign in the Balance of Payments model. The relationship between Balance of Payments and Exchange Rate variations over the two time periods (Regulated and Deregulated) is different (there is a structural break) Conclusion The study examined the impact of Exchange Rate variations on Balance of Payments position in Nigeria during alternative economic regimes. From the results and findings, it was discovered that Exchange Rate had serious implication on Balance of Payments position during the deregulated than regulated period. This is shown by the higher value of the coefficient of determination of the Balance of Payments model in the deregulated period. Also, Exchange Rate, Balance of Trade, Money Supply and Government Expenditure all appeared with the appropriate sign and were statistically significant during the deregulated period than the regulated period. Recommendations Based on these results and findings, the study recommends that government expenditure should be increased on capital project such as roads, power etc, the Naira should be devalued with respect to other currencies of the world especially the U.S. dollars, exports should be stimulated and direct controls should be implemented by the Federal Government on unnecessary imports as possible ways of improving the Balance of Payments position in the Nigerian economy. References Agene, C. E. (1991): Foreign exchange and international trade in Nigeria. Lagos: Gene Publications Aniekan, O. (2013): A review of empirical literature on balance of payments as a monetary phenomenon. Journal of Emerging Trends in Economics and Management Sciences (JETEMS) 4(2): Anifowose, O. K. (1994): Allocation and management of foreign exchange: the experience. CBN Bulletin, vol. 18: No 4. Beatrice, K. M. (2001): Long-run and short-run determinants of the real exchange rate in Zambia. Working Papers No 40, cited at Central Bank of Nigeria (2010): Statistical Bulletin, Abuja, Nigeria

10 Central Bank of Nigeria (2012): Statistical Bulletin, Abuja, Nigeria Central Bank of Nigeria (2010): The foreign exchange market in Nigeria. [Online].Available: Central Bank of Nigeria (2012): The foreign exchange market in Nigeria. [Online].Available: Chowdhury, M. B. (1999): The determinants of real exchange rate: theory and evidence from Papua Guinea. Asia Pacific School of Economics and Management Working Paper: Cooper, R.N. (1978): Flexible Exchange rate and stabilization policy. Scandinavian Journal of Economics, No.2. Dubas, J. M. (2009): The importance of the exchange rate regime in limiting misalignment. World Development, 37 (10): NNPC (1983): Nigerian Oil Industry Statistical Bulletin. Lagos, Nigeria Obadan, M. I. (2006): Overview of exchange rate management in Nigeria from 1986 to date: in the dynamics of exchange rate in Nigeria. Central Bank of Nigeria Bullion, vol. 30, no. 3, pp Odusola, A. (2006): Economics of exchange rate management, in the dynamics of exchange rate in Nigeria. Central Bank of Nigeria Bullion, 30(3): Onoh, J. K. (1982): Money and banking in Africa, New York: Longman Patel, U. R. & Srivastava, P. (1997): The real exchange rate in India: determinants and targeting. Centre for Economic Performance Discussion Paper No Speller, W. R. (2006): Real exchange rate in the industrialized commodity currency economies: an error-correction framework, being an abstract of a Master s Thesis presented to the Stockholm School of Economies, Sweden. Dufrenot, G., & Yehoue, E. (2005): Real exchange rate misalignment: a panel of co-integration and common factor analysis. IMF working paper: 05/164. Washington, DC: IMF Gbosi, A. N. (2002): Financial sector instability and challenges to Nigeria s monetary authorities. Port Harcourt: African Heritage Publishers Imoisi, A. I. (2012): Trends in Nigeria s Balance of Payments: an Empirical Analysis from : European Journal of Business and Management, IISTE, U. S. A., vol. 4 (21), , ISSN Jhingan, M. L. (2006): International Economics. Vrinda Publications Ltd, Delhi, India Khan, M., S & Lizondo, J. S. (1987): Devaluation, fiscal deficits and the real exchange rate in developing countries. World Bank Economic Review, 1(2): Washington DC.