Effects of Exchange Rates on Disaggregated Components of Balance of Payment in Nigeria

This study examined the impact of exchange rate on disaggregated components of balance of payment in Nigeria for the period 2005-2020, using quarterly time series data generated from Central Bank of Nigeria Statistical bulletin, 2020. The Autoregressive distributed lag (ARDL) approach to co-integration and its corresponding error correction mechanism (ECM) were used as the method of analysis. The results indicated that exchange rate has a significant positive impact on individual components of balance of payment in Nigeria. However, inflationary pressures reduce the effectiveness of exchange rate in impacting positively on current account and capital and financial account components of balance of payment in Nigeria. Informed by these findings, the study suggested among other things that authorities in Nigeria should invest more attention in closing the gap between the official exchange rate and the real market exchange rate.