This article consists of 35 pages and 8511 words.
In order to have full access to this article, email us at thedocumentco@hotmail.co.uk
Risk and its impact on foreign trade in Nigeria
Contents
Chapter 2: Literature Review.. 7
Conceptual or Theoretical Framework. 11
Review of Research (organized by variable). 16
Introduction:
Risk and its impact on foreign trade in Nigeria, Over a long period of time, it has been noticed that economy of Nigeria has been fluctuating. To uplift it economically foreign trade plays an important role. Oil and petroleum sector of Nigeria fills the void of oil supply around the world and produces 3.1% of oil around the world. Foreign trade is a vital part of any country as no country around the world cannot be self-reliant and live without imports. Even the developed countries which are the economic giants cannot survive on their own. The value of a currency is so important as it reflects the progress of a country.
The value of a country is known by its exchange rate. Exchange rates are between two countries. These countries are having good relations with each other. The relationship between exchange rate risk and its impact on foreign trade will be observed. The systematic pattern will be examined in Nigerian Economy and the factors will be identified which affect foreign trade.
Not all countries can achieve stable exchange rate. A country like Nigeria’s trade has always been an avital source of growth and development since 1981 for it. Nigeria is emerging open economy which heavily depends upon imports to meet the demand of the consumers (Reinhart & Rogoff, 2004). Risk and its impact on foreign trade in Nigeria The local currency is beginning was tremendously well in which the main exports were cocoa, rubber, and other agricultural products.
There is a massive increase in volatility of exchange rate around the world since the 1970s after to exit of Bretton Wood system. However, a country such as Nigeria, having a mono-product economy, is affected most. Jones & G.I (2000)the most important trading partner of Nigeria is the United States of America. So, Nigeria has to pay for the goods purchased from America in US dollars and supply the naira (Nigeria’s currency) to find products and services.
However, the rate of US dollars to pound Sterling (previous currency of Nigeria) was used to be 1:1 ratio from 1960 till 1973.After that, naira kept on increasing source imports cheaply to complete development projects. This increase in imports led to the depreciation of external reserves. Hence, a gradual decrease in amortization of naira started from 1981 (Omotunde, Sunday, & John-Dewole, 2013).
Soludo & Governor (2007)several measures have been taken to strengthen naira against dollars includes some ban on foreign exchange by the central and federal government. However, risk and its impact on foreign trade in Nigeria it is kept from falling comparatively. The core reason for this is the export of oil. Oil is the primary cause of energy in Nigeria and the world which was discovered at the beginning of the century. It started playing a significant role in the end of the civil war and Nigeria was able to gather vast riches from its production.
The oil sector can be categorized into three main factors; upstream, downstream and gas (Collier, Soludo, & Pattillo, 2008). The most troublesome industry is downstream, which is the connection and distribution arm with final consumers of refined petroleum. Thus, the domestic economy is affecting day by day. Therefore, this is the primary factor contributing to the downfall of the economy of Nigeria and a higher rate of USD as compared to naira (Madichie, 2005).
The five primary reasons for the downfall of Nigeria include:
- Inadequate infrastructure: It has been observed that in recent years, imports have increased rapidly as compared to exports. The vital reason behind this is the insufficient supply of power, adequate transportation and unpredictably whether condition. It all leads to fewer products being manufactured in the country and leads to import more products to fulfill consumers’ needs.
Unwholesome practices of intermediaries: The gap between official and parallel market keeps on increasing. Round-tripping has been observed in Nigerian forex market. Thus, people buy dollars from the formal market and sell them at a high price on the parallel market.
- Persistent negative predictions: Unfortunately, Nigeria is known to be indulged in several bad things worldwide. As a result, this portrays negative impact on the investors who resist putting money into Nigerian economy.
- “Made Abroad” mentality of Nigerians: Rather than using local products, Nigerians often prefer imported good. However, this good could easily be produced locally. As a result, imports further increase and naira is depreciated.
- General instability: National stability including political, economic and social affairs has always been troublesome for Nigeria. Frequent clashes between local tribes resist the investors to trust them
Furthermore, the primary concern for naira’s exchange rate is instability. Since the exchange rate is an essential tool for measuring exports of a country worldwide, research is to be done to determine Nigeria’s nonoil exports. Although the government is trying to promote international trade, their policies have remained uncertain (Liss, 2007).
Foreign exchange plays an integral part in boosting the economy of Nigeria.This research will indicate the factors which affect the exchange rate and how exchange rate will change the trade in Nigerian Economy.
The research questions sketched to conduct the study are listed below:
- What is a connection between exchange rate fluctuation and real exchange rate?
- How can we measure the degree of openness and does it have an impact on the balance of payment in Nigeria?
- In both short and long run, what is the effect of exchange rate fluctuation, the level of balance of payment and real exchange rate on export-import?
In the proposed research, following research hypothesis will be tested:
Ho: There is a significant impact on the real exchange rate, exchange rate risk, the degree of the balance of payment and openness on import and export in Nigeria.
H1: There is no significant impact on the real exchange rate, exchange rate risk, the degree of the balance of payment and openness on import and export in Nigeria.
Ho: Real exchange rate, exchange rate volatility, the degree of balance of payment and openness export-import does have an impact in Nigeria in both short and long run.
H1: There is no impact of real exchange rate, exchange rate volatility, the degree of balance of payment and openness on export-import in both short and long run in Nigeria…
Recent Comments