Foreign Exchange Rate Volatility Determinants and Their Relationship with Non-Oil Export in Nigeria

This chapter evaluated foreign exchange rate volatility determinants and their relationship with Non-Oil Export in Nigeria. Effect of Exchange rate volatility has been controversial empirical issues on this premise, the driving forces (determinants) of exchange rate volatility was investigated. The study collected time series data covering 36 years (1982-2017) from CBN, 2019. The dataset collected from secondary source was analysed using descriptive statistics as well as co-integration analysis (Autoregressive Distributed Lag). The study also used Autoregressive Conditional Heteroscedasticity (ARCH) and Generalised Autoregressive Conditional Heteroscedasticity (GARCH) model to determine the presence of volatility in the exchange rate. Augmented Dickey Fuller (ADF) and Phillips Perron Test (PPT) were used to test the unit roots and determine the non-stationarity among the variables. Autoregressive Distributed Lag and bound test was used to determine long run co-integration among the dependent and independent variables. The volatility of exchange rate on the non-oil export in Nigeria was determined through ARCH and GARCH 1(1) model. The results derived from the analysed data showed that foreign exchange rate, bank rate, inflation and foreign exchange volume have positive relationship with non-oil export, however, GDP, M2 and Government expenditure has negative coefficient and statistically insignificant. Exchange rate and inflation have, respectively, the most variable effects on non-oil export in Nigeria, according to the ARCH (1)1 and ARDL models. The government should pursue a rebounding exchange rate stability strategy that will encourages non-oil exports.