EFFECT OF EXCHANGE RATE VARIATION ON SOME SELECTED NIGERIAN AGRICULTURAL EXPORT COMMODITIES (1986-2002)

EFFECT OF EXCHANGE RATE VARIATION ON SOME SELECTED NIGERIAN AGRICULTURAL EXPORT COMMODITIES (1986-2002)

Abstract:

There has been controversy among economists on whether or not exchange rate variability since the breakdown of the fixed exchange rate has had a negative effect on trade. The most common assertion has been that the risk associated with such exchange rate variation has reduced the level of exports. This is countered by the argument that the use of forward markets could ameliorate risk in the short to medium term effect. Based on the aforementioned, there have been several empirical studies on this issue. Despite this renewed interest, however, the studies have concentrated on aggregated trade flows and short run effect with little emphasis on particular crops. In a similar vein, other factors like interest rate and weather condition were not taken into consideration. The focus of this study therefore, is to examine the effect of exchange rate variation on some selected Nigerian agricultural export commodities (i.e. Cocoa, Rubber, Cotton and Cocoa butter). In studying the effect of exchange rate variation, it is important to look at the short, medium and long run effects with particular emphasis on some crops. Therefore, in this study, the long run effect of exchange rate variation on the above mentioned Nigerian agricultural export commodities were examined. The work was within the context of recent econometric work most especially the pioneering model discussed and applied by Nerlove (1958), and later Philip viii (1989, 1996) in which various measures of some selected export crops production were regressed on suitable variables for farmers’ expected commodity prices. The results obtained suggest that exchange rates are significant in determining Nigerian agricultural exports. Based on this, the study recommends that the monetary authority should adopt a mechanism that will lead to the stability of the exchange rate. Erratic changes in the exchange rate have a long term negative effect on production of agricultural exports

EFFECT OF EXCHANGE RATE VARIATION ON SOME SELECTED NIGERIAN AGRICULTURAL EXPORT COMMODITIES (1986-2002)