ABSTRACT

This study empirically examines the effects of exchange rate on balance of payment in Nigeria, using quarterly data from 1981-2017. The empirical methodology utilized the Bounds cointegration test to detect possible long-run and short-run dynamic relationship, and found no presence of long run relationship between the variables used in the model. The study employed the Autoregressive distributed lag (ARDL), to check for properties in the relationship between the variables above listed, the result showed that exchange rate positively and significantly influences balance of payment. It also utilized the Pairwise Granger Causality test to check for any causality between exchange rate and balance of payment, the findings proved that exchange rate affects balance of payment. The policy implication of these finding calls for the harmonization of exchange rate, gross national income, inflation rate, to improve the balance of payment in Nigeria.