Exchange Rate and Total Factor Productivity in Nigeria
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Abstract
This study investigates the relationship between exchange rate and Total Factor Productivity (TFP) in Nigeria from 1981 to 2022, recognizing TFP as vital to industrialization, trade, competitiveness, and economic growth. While prior studies have explored exchange rate dynamics, limited attention has been paid to its direct impact on TFP. Using an ex-post facto design and data from the World Development Indicators (WDI) and FRED, the study applies the ARDL model to assess both long- and short-run effects. Results show that exchange rate fluctuations significantly reduce TFP in both time frames, underscoring the need for exchange rate stability to support productivity. A unidirectional causality from exchange rate to TFP is also identified, emphasising the importance of macroeconomic policies. The study recommends adopting a managed exchange rate regime, bolstering foreign reserves, and pursuing structural reforms to enhance productivity and competitiveness.
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