ABSTRACT

 This paper empirically investigates impact of exchange rate on balance of payments in Nigeria, using the Ordinary Least Square (OLS) method of estimation for data covering the period between 1981 and 2018. We found that Exchange Rate (EXCH) has a negative but significant impact on balance ofpayment in Nigeria, Interest Rate (INT) has a negative and insignificant impact on balance ofpayment in Nigeria, while Inflation (INF) has a negative but significant impact on the balance ofpayment in Nigeria. The exchange rate depreciation can actually lead to improved balance ofpayments position iffiscal discipline is imposed. We alsofound out that improper allocation and misuse ofdomestic credit, fiscal indiscipline, and lack ofappropriate expenditure control policies due to centralization ofpower in government are some ofthe causes ofpersistent balance ofpayments deficits in Nigeria. We recommend that appropriate monitoring machineries be set up to ensure judicious use of credit and available foreign exchange. Exchange rate policies have to be used along with the fiscal and monetary instruments to get meaningful results. This implies that our balance ofpayments problems can be solved simultaneously from two angles, namely, boosting supply and managing demand. Export diversification and promotion, import substitution and frivolous import restriction cannot be over emphasized