Foreign Exchange Market and the Nigeria Economy

Abstract

Prompted by the need to argue Akpan's earlier study and findings, this paper attempts to empirically examine the effect of the demand and supply of foreign exchange on the gross domestic product of the Nigerian economy over a fourteen (14) year-period (1995-2008). Employing the use of vector auto regression (VARs) models on the time series data, the result reveal that supply of foreign exchange has a positive and significant relationship with output level of Gross Domestic Product while the demand for foreign exchange has a negative relationship with gross demand product. This implies that the growth in supply of foreign exchange has resulted in an increase in the Gross Domestic Product in Nigeria. Finally, the study recommends that the determinants of the demand for foreign exchange should be analized in order to understand what occasioned the negative relationship with Gross Domestic Product.

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