Effectiveness of Naira Devaluation on Economic Growthin Nigeria

Effectiveness of Naira Devaluation on Economic Growthin Nigeria

Author by Dr. Jacob Ademola Osundina

Language: English

Abstract

Currency devaluation as a policy instrument has been used in several countries (both developing and developed). The decision taken by monetary policy committee in November 2014 on naira devaluation has generated a lot of arguments both for and against and its workability on an import driven economy like Nigeria. Renowned economists in the country have not had any consensus hence the need to analyse the effectiveness of currency devaluation in Nigerian economy. Exchange rate, import, export and interest rates were used as proxies for currency devaluation, while real GDP was used to measure growth. The result of the analysis which is in line with the a priori expectation shows that devaluation reduces importation; encourages exportation and increases interest rate. Inflation and unemployment are the side effects of currency devaluation in the short run according to Marshall-Lerner’s condition which produces a J-shaped curve of devaluation. Discretionary policies such as fiscal measures should be put in place to curb the associated increase in inflation.


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