Exchange Rate and Trade Balance in Nigeria: Testing for the Validity of J-Curve Phenomenon and Marshall-Lerner Condition
Keywords:Exchange rate, Trade balance, J-Curve phenomenon, Marshall-Lerner condition, Nigeria.
This study examined the validity of the J-Curve Phenomenon and Marshall-Lerner Condition in the Nigerian context using data from 1982-2020. The Autoregressive Distributed Lag Bounds test method of cointegration was employed for the analysis of short-run and long-run effects of exchange rate uncertainty on the trade balance. The long-run result endorsed the validity of the Marshall-Lerner Condition in Nigeria. Thus, a depreciation of the Naira improves the trade balance in the long run. However, the results of the short-run dynamics revealed that there is no J-Curve phenomenon in Nigeria. The study recommends diversification of exports to improve the performance of Nigeria’s non-oil exports. In addition, fiscal, monetary and exchange rate policies should be properly harmonized to tackle trade deficits. Furthermore, there should be more investment in Research and Development in Nigeria to improve the value of goods exported and the competitiveness of its exports in the arena of international trade.