Exchange Rate Deregulation Andagricultural Export Performance in Nigeria: Evidence from Vector Error Correction Modelling
Keywords:
Exchange Rate Deregulation, Agricultural Export Performance, Vector Error Correction Modelling, Nigeria
Abstract
This study examined response of real agricultural exports to exchange rate deregulation policy in Nigeria. Examinations of statistical properties of the relevant variables showed they are generally I(1) series, and exhibits multiple co-integrating relations. Thus, the study examined the agricultural export response within the framework of Vector Error Correction Modelling (VECM). The study found that the anticipated inverse relationship exists between real agricultural export and exchange rate as postulated in trade theories. However, while the response is elastic in the short-run, it is smaller and inelastic in the long run. Meanwhile, any exogenously induced changes/ shock to the long-run relations is corrected within one year. Thus, income gains an elastic short-run export supply response to changes in the exchange rate tend to be eroded quickly as real agricultural export returns to its in-elastic long-run equilibrium relations with the exchange rate in about a year. Meanwhile, long-run agricultural export quantity supply is world price inelastic and falls with increase in real GDP in the world, depicting an inferior good. The study thus recommends that Nigeria should strive to promote a stronger Naira, a stable domestic prices and an enhanced quality of agricultural export commodities.
References
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Boswijk, H.P., J.A. Doornik. 2002. “Identifying, Estimating and Testing Restricted Cointegrated Systems: An Overview”, A Paper Presented at Henri Theil Memorial Conference, Universiteit van Amsterdam, 16-18, August, 2002.
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Engle, R.F., C.W.J. Granger, 1987. “Co-integration and Error Correction: Representation, Estimation, and Testing,” Econometrica 55, 251–276.
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Johansen, S., K. Juselius 1992. “Testing Structural Hypotheses in a Multivariate Cointegrating Analysis of the PPP and UIP for UK”, Journal of Econometrics, 53, 211-244.
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Nelson, C.R., C. Plosser. 1982. “Trends and random walks in macroeconomic time series, Journal of Monetary Economics, 10, 129-62.
Obadan, M.I. 1994. An Econometric Analysis of Rubber Export, NCEMA Occasional Paper.
Olomola, A. S. 1998. “Analysis and Management of Agricultural Sector Performance and Inter – Sectoral linkages”, Paper presented at Training Programme on Sectoral Policy Analysis and Management, NCEMA; Ibadan (June).
Olomola, A.S., A.C. Nwosu, F.O. Okunmadewa. 1998. “Market liberalization and its effects on Nigeria’s agriculture”, Working Paper No. 16, National Research Network on Trade Liberalisation Policies in Nigeria / International Research Centre, Canada.
Pesaran, M.H., Y. Shin. 2002. “Long-run Structural Modelling” Econometric Reviews, 21, 49-87.
Phillip, D.O.A. 1996. “Responsiveness of selected agricultural export commodities to exchange rate devaluation in Nigeria: an econometric analysis, Central Bank of Nigeria – Economic and Financial Review, 34(2), 57 – 78.
Tambi, E.N. 1999. “Co-integration and Error - correction Modelling of Agricultural Export Supply in Cameroon”, Agricultural Economics, 20, 57 – 67.
Tijani, A.A., O.O. Ajetunmobi, O. Ajobo. 1999. “A Cointegration Approach to Nigeria’s Cocoa Export Supply”, Journal of Rural Economics and Development, 13 (1), 45-56.
Wistler D., K.J. White, S.D. Wong., D. Bates. 2001. SHAZAM Econometric Software Version 9: User Reference Manual, Northwest Econometrics Ltd., Vancouver, B.C., Canada.
World Bank, 2002. “Nigeria Data Profile”, World Development Indicators database. World Bank, Washington D.C.
World Bank, 2004. “Nigeria at a glance”, World Development Indicators database. World Bank, Washington D.C.
Aigbokhan, B.E. 2001. “Resuscitating Agricultural Production (Cocoa, Cotton, Groundnuts, Palm oil, Rubber, e.t.c) for exports”. Paper presented at the 10th Annual Conference of Zonal Research Unit of The Central Bank of Nigeria, held in Owerri, June 4 – 8, 2001.
Ajobo, O., A.A. Tijani., S.A. Bamire, 1996. “Analysis of Nigeria’s cocoa agriculture time series”, Nigerian Journal of Tree Crop Research, 1(2), 62-77.
Arize, A.C., P. Chooekawong.,V. Prasanpanich. 2000. “Foreign Trade Behaviour in Thailand: Stable or Unstable?”, American Economic Review, 44 (2), 36-45.
Bogunjoko, J.O. 1997. Monetary Dimension of The Nigerian Economic Crisis: Empirical Evidence From a Cointegration Paradigm. National Centre for Economic Management and Administration (NCEMA) Bodija, Ibadan.
Boswijk, H.P., 2000. “Mixed Normality and Ancillarity in I(2) Systems”, Econometric Theory, 16, 878-904.
Boswijk, H.P., J.A. Doornik. 2002. “Identifying, Estimating and Testing Restricted Cointegrated Systems: An Overview”, A Paper Presented at Henri Theil Memorial Conference, Universiteit van Amsterdam, 16-18, August, 2002.
Central Bank of Nigeria (CBN). 2003. “A review of Nigeria’s exchange rate policies since deregulation in 1986”, CBN Economic and Financial Review 41 (3), 11-44
Central Bank of Nigeria (CBN). 2004. Statistical Bulletin, December 2004 edition, CBN, Abuja, Nigeria.
Davidson, R., J.G. MacKinnon. 1993. Estimation and Inference in Econometrics, Oxford University Press.
Doornik, J.A. 1995. “Testing General Restrictions on the Cointegrating Space”, Discussion Paper, Nuffield College, http://hicks.nuff.ox.ac.uk/Users/Doornik.
Egwaikhide, R.F. 1993. “Determinants of import in Nigeria: dynamic specification”, Paper presented at the African Economic Research Consortium workshop, Nairobi, Kenya (December, 1993).
EViews, 1998. “EViews Version 3.1 Help Topics”, EViews, Quantitative Micro Software.
Elliott, G. 2000. “Estimating Restricted Cointegrating Vectors”, Journal of Business and Economic Statistics, 18, 91-99.
Engle, R.F., C.W.J. Granger, 1987. “Co-integration and Error Correction: Representation, Estimation, and Testing,” Econometrica 55, 251–276.
FAOSTAT data, 2004. Food and Agriculture Organisation (FAO) Statistics Division. http://apps/fao.org/
Federal Office of Statistics (FOS). 1996. Poverty in Nigeria, FOS, Nigeria.
Federal Office of Statistics (FOS). 1999. Poverty and Welfare in Nigeria, FOS, Nigeria.
Granger, C.W.J., P. Newbold, 1974. “Spurious regressions in econometrics”, Journal of Econometrics, 2, 110-120.
Hansen, P.R. 2002. “Generalised Reduced Rank Regression”, Economics Working Paper 2002-02, Brown University, http://www.econ.brown.edu/fac/Peter_Hansen/ Papers/grrr.pdf.
Johansen, S. 1991. “Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models,” Econometrica, 59, 1551–1580.
Johansen, S. 1992. "Determination of Cointegration Rank in the Presence of a Linear Trend," Oxford Bulletin of Economics and Statistics, 54, 383-397.
Johansen, S. 1995a. Likelihood-based Inference in Cointegrated Vector Autoregressive Models, Oxford University Press.
Johansen, S. 1995b. “Identifying Restrictions of Linear Equations – With Applications to Simultaneous Equations and Cointegration”, Journal of Econometrics, 69, 111-132
Johansen, S., K. Juselius. 1990. “Maximum Likelihood Estimation and Inferences on Cointegration—with applications to the demand for money,” Oxford Bulletin of Economics and Statistics, 52, 169–210.
Johansen, S., K. Juselius 1992. “Testing Structural Hypotheses in a Multivariate Cointegrating Analysis of the PPP and UIP for UK”, Journal of Econometrics, 53, 211-244.
Johansen, S., K. Juselius. 1994. “Identification of the Long-run and the Short-run Structure: An Application to the ISLM Model”, Journal of Econometrics, 63, 7-36.
Malchau, G. 2002. From World Market Back to Internal Markets: Dynamics of Agriculture in The Hinterland of Gombe and Rural Areas in Southern Nigeria. Dept of Geography, University of Heidelberg.
Nelson, C.R., C. Plosser. 1982. “Trends and random walks in macroeconomic time series, Journal of Monetary Economics, 10, 129-62.
Obadan, M.I. 1994. An Econometric Analysis of Rubber Export, NCEMA Occasional Paper.
Olomola, A. S. 1998. “Analysis and Management of Agricultural Sector Performance and Inter – Sectoral linkages”, Paper presented at Training Programme on Sectoral Policy Analysis and Management, NCEMA; Ibadan (June).
Olomola, A.S., A.C. Nwosu, F.O. Okunmadewa. 1998. “Market liberalization and its effects on Nigeria’s agriculture”, Working Paper No. 16, National Research Network on Trade Liberalisation Policies in Nigeria / International Research Centre, Canada.
Pesaran, M.H., Y. Shin. 2002. “Long-run Structural Modelling” Econometric Reviews, 21, 49-87.
Phillip, D.O.A. 1996. “Responsiveness of selected agricultural export commodities to exchange rate devaluation in Nigeria: an econometric analysis, Central Bank of Nigeria – Economic and Financial Review, 34(2), 57 – 78.
Tambi, E.N. 1999. “Co-integration and Error - correction Modelling of Agricultural Export Supply in Cameroon”, Agricultural Economics, 20, 57 – 67.
Tijani, A.A., O.O. Ajetunmobi, O. Ajobo. 1999. “A Cointegration Approach to Nigeria’s Cocoa Export Supply”, Journal of Rural Economics and Development, 13 (1), 45-56.
Wistler D., K.J. White, S.D. Wong., D. Bates. 2001. SHAZAM Econometric Software Version 9: User Reference Manual, Northwest Econometrics Ltd., Vancouver, B.C., Canada.
World Bank, 2002. “Nigeria Data Profile”, World Development Indicators database. World Bank, Washington D.C.
World Bank, 2004. “Nigeria at a glance”, World Development Indicators database. World Bank, Washington D.C.
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