PROPOSAL ON THE RESEARCH TITLE: THE EFFECT OF EXCHANGE RATE AND

INFLATION RATE ON NIGERIAN ECONOMIC GROWTH

INTRODUCTION

Since economic growth is essential to lowering poverty, raising living standards, and promoting
sustainable development, it is a top priority for many emerging nations. Even with its wealth of
natural resources and expanding labor force, Nigeria, one of Africa's biggest countries, has
struggled to achieve steady and strong economic growth. Nigeria's economic environment has
been significantly shaped by macroeconomic factors, especially the inflation and exchange rates,
which are undeniably significant (Miftahu & Shuyur, 2023). These factors have an impact on
both domestic companies and the dynamics of global trade, influencing everything from
consumer purchasing power to the price of imported goods.

Exchange rates, or the value of the Nigerian Naira in relation to other currencies, have an impact
on the country's general economic stability, investment inflows, and trade balance. The impact of
exchange rate variations on economic growth has been the subject of heated discussions in the
academic literature. Fapetu (2013) emphasized that changes in exchange rates have a major
impact on Nigeria's economic growth. These variations affect overall supply and demand, which
in turn affects domestic prices (Kandil, 2004). Regular changes in exchange rates breed
uncertainty, which undermines investor confidence and makes long-term planning difficult for
businesses. In an effort to boost their profit margins, import-competing businesses may likewise
raise their prices in reaction to overseas competitors' rises, which could have a negative impact
on economic growth (Uduakobong and Enobong, 2015). Additionally, Olawuni (2020)
discovered that while a depreciation promotes exports and discourages imports, an appreciation
of the currency rate increases imports and decreases exports.

According to Lipsey and Chrystal (1995), inflation is characterized as an overall spike in prices
that lasts for an extended length of time in an economy; in other words, a steady rise in the cost
of goods and services that increases the cost of living and reduces the purchasing power of the
currency. In Nigeria, high rates of inflation have long been a problem, undermining savings,
lowering disposable income, and impeding attempts to combat poverty. Hossain and Islam
(2012) contend that while high inflation is detrimental to an economy due to its negative impact
on economic performance, zero inflation is just as detrimental since it will ultimately cause the
economy to stagnate, even though mild inflation is necessary for economic growth. Since
inflation is by no means a new issue or phenomenon, its control has become the unquestioned
concept of economic policymakers worldwide over the years. The problem is not limited to
national borders or emerging market economies of the world; it is also a general problem in
developed market economies.
Nigeria's inability to maintain stable inflation and exchange rates has hampered sustainable
economic growth, despite continuous efforts by the government and central bank to stabilize the
economy. Policymakers must comprehend how these two factors relate to economic growth in
order to create interventions and changes that work. This study aims to investigate how inflation
and exchange rate swings affect Nigeria's growth in the economy, providing insightful analysis
and useful suggestions for changing policy. This study intends to add to the larger conversation
on attaining macroeconomic stability and fostering long-term economic development in Nigeria
by determining the significance and pattern of these links.

STATEMENT OF PROBLEM

Changes in important macroeconomic factors, especially the exchange rate and inflation rate,
have had a significant impact on Nigeria's economic growth. Nigeria has had a difficult time
keeping its currency stable and reining in inflation throughout the years. Because they have an
impact on people's purchasing power, the price of products and services, the competitiveness of
Nigerian exports, and the general stability of the economy, these two factors are crucial.

Nigeria's economy remains unstable despite numerous government initiatives and policies
designed to stabilize these factors; this is frequently evident in times of elevated inflation and
volatile exchange rates. This instability affects Nigerians' quality of life, deters foreign
investment, and impedes sustained economic growth.

The purpose of this study is to examine the connection between Nigeria's economic growth,
inflation rates, and exchange rate swings. By examining this link, the study seeks to shed light on
how much the inflation and exchange rates affect economic growth, spot trends, and make policy
recommendations that can aid Nigeria in achieving more stable and long-term economic growth.

RESEARCH OBJECTIVES

The primary aim of the study is to evaluate the effect of exchange rate and inflation rate on
Nigeria’s economic growth. The specific objectives are stated as follows. To:

1. Examine the impact of exchange rate fluctuations on Nigeria’s economic growth between
1990 and 2023.
2. Assess the effect of inflation rate changes on the economic growth of Nigeria between
1990 and 2023.
3. Analyse the combined influence of exchange rate and inflation rate on Nigeria’s GDP
growth between 1990 and 2023.

RESEARCH QUESTIONS

The study seeks to address the following questions:

 1. How do exchange rate fluctuation affect economic growth in Nigeria between 1990 and
2023?
2. What is the effect of inflation rate changes on Nigeria’s economic growth from 1990 to
2023?
3. How do exchange rate and inflation rate together influence Nigeria’s economic growth
between 1990 and 2023?

RESEARCH HYPOTHESIS

The research hypothesis for this study is stated as:

H0: Exchange rate and inflation rate have no significant impact on Nigeria’s economic growth
between 1990 and 2023.

H1: Exchange rate and inflation rate have a significant impact on Nigeria’s economic growth
between 1990 and 2023.

SCOPE OF THE STUDY

The impact of inflation and exchange rate on Nigeria’s economic growth from 1990 to 2023 is
investigated in this study. This period includes a number of Nigerian economic stages, such as
exchange rate volatility, inflationary pressures, structyral modifications and policy changes.
Because of its broad scope, the study shed light on how these important macroeconomic factors
have affected Nigeria’s GDP growth in various economic environments. To guarantee accuracy
and consistency in the study, data will be collected from reputable sources, including the world
bank, the National Bureau of Statistics (NBS), and the Central Bank of Nigeria (CBN). The
research will employ quantitative techniques, namely a multiple regression model, to assess how
inflation and exchange rate affect economic growth while accounting for other economic factors
such as interest rate, foreign direct investment and government expenditure.

SIGNIFICNACE OF THE STUDY

This study is important because it can help researchers, investors and policy makers understand
how exchange rate and inflation rate affect Nigeria’s economic growth. The study offers crucial
insights for policymakers to create efficient fiscal and monetary policies targeted at stabililsing
the economy by examining these effects during the 1990 to 2023 timeframe. Developing
measures to control inflation and exchange rate volatility and support sustainable economic
growth can be aided by an understanding of the relationship between these important
macroeconomic factors and GDP growth.

The study provides useful information on how inflation and exchange rate affects investment
returns and purchasing power, empowering both domestic and foreign investors to make better
decisions. Additionally, by providing actual data on the relationship between macroeconomic
indicators and economic growth in developing nations like Nigeria, this study adds to the body of
knowledge in academia and lays the foundation for future research and comparative analysis.
The study’s conclusions are also used for improving economic stability since they can help the
Nigerian government pinpoint specific policy areas to promote economic development and
identify important variables influencing GDP growth. The ultimate goal of this study is to
promote sustainable growth strategies by highlighting how crucial it is to control inflation and
exchange rate in order to strenghten Nigeria’s economic resilience and prosperity.

RESEARCH METHODOLOGY

The research methodology for this study adopts a quantitative research design to examine how
Nigeria’s economic growth is impacted by the exchange rate and inflation rate. In particular, it
employs ex-post facto approach to analyse historical data and evaluate the impact of inflation
and exchange rate variations on a GDP growth between 1990 and 2023. This design makes it
possible to deduce a causal relationship from past trends in the data.

The Central Bank of Nigeria (CBN), the National Bureau of Statistics (NBS) and World Bank
databases are among the reliable sources of secondary data used in this study. Key indicators like
GDP growth rate, exchange rate, inflation rate, interest rate, foreign direct investment and
government spending are all consistently by these sources.

The GDP growth rate, a measure of Nigeria’s economic growth, is the study’s dependent
variable. The interest rate, foreign direct investment (FDI) and government spending are control
variables that assist account for other economic factors driving growth , while exchange rate and
inflation rate are the primary independent variables.

Descriptive statistics are among the data analysis method used in this study to describe and
summarise the data’s features, giving a broad picture of trends and patterns in GDP growth,
inflation and exchange rate. Potential relationships between the exchange rate, inflation and
economic growth can be found by using correlation analyisis, which quantifies the direction and
degree of the relationship between the variables. Multiple regression analysis is the main
analytical techniques for determining how the exchange rate and inflation rate affects economic
growth. The model’s coefficient will be estimated using the Ordinary Least Square (OLS)
method. To further guarantee the validity and reliability of the regression result, diagnostic test
for stationarity, multicollinearity, and heteroscedasciticity will be carried out. The Variance
Inflation Factor (VIF) for multicollinearity and Augmented Dickey-Fuller (ADF) test for
stationarity will be used.