The Implication of Naira Devaluation to the Nigeria’s Economic Development
The fundamental intent of the study is to estimate the implication and affiliation flanked by economic development and Naira devaluation in Nigeria. The above intent shoot from assessing whether there are a significant affiliation and impact from devaluation to economic development proxied by (GDP). Which therefore forms the central argument of the study. The study by means of Classical Linear Regression Model (CLRM) adopts secondary data from 2000 to 2015. The Ordinary Least Square technique signifies the prime technique in relation to an array of other universal/ customary and analytical test. The R2 explains that 92% of the variation in GDP in the model study is explained by the principal regressors. Exchange and the inflation rate were sustained to have a positive and significant affiliation with GDP while, external debt, and public investment was negative and non-significant. The study established that devaluation is not peculiarly Nigerian. The results bare that devaluation does more harm than good within the Nigerian context since the needed prerequisite to ensure gains from devaluation are not present in the system.
Economic growth and development universally play host to three core fundamentals of short and long-run economic targets for the achievement of a stable and sustainable growth, employment, and a bare minimum inflation rate with a favourable trade point. The realizations of the above economic targets and profitability have propelled, nations over time to adopt monetary and fiscal policies to regulate the shift in the aggregate demand curve. Empirical research bare and recognized an economic world that in her earlier epoch witness economic depressions in 1910 and 1930s herein refer to as the “Great Economic Depression” which negatively impacted on the global economy with particular effect on domestic currencies. Which, therefore, propel nations to adopt devaluation as the last resort and as a key to economic lift. In the contemporary era, devaluation has been contained in line with the traditionalist argument as a macroeconomic policy tool for most developing economies of the world. The International Monetary Fund (IMF) and World Bank clinching to currency devaluation as a medium to domestic firms protection against external competition and increase net export boost. Nations in conjunction with economic theories and in line with the traditionalist argument consensually cuddle devaluation as a fiscal policy and as a medium of domestic economic enhancement in the long-run by means of net export stimulation to economic diversification, increase domestic international competitiveness, trade balance expansion, employment generation and balance of payment alleviation so long as the Marshall-Lerner conditions are gratified. The Marshall-Lerner condition holds that; devaluation enhances expansion where the sum of price elasticity of demand for export and the price elasticity of demand for imports is greater than unity (>1). The Nigerian economy over the decade has been recognized to be a monocultural and oil-driven. With oil funding 95 percent of foreign earnings, 80 percent to GDP, an above 90 percent of total export valued at $47.8 billion consequently placing Nigeria as the 49th largest exporter and import at $39.5 billion placing Nigeria as the 53rd largest importer universally. Nigeria in the modern era is not immune from global economic and financial crisis. Nigeria, therefore, is currently trapped in the web of exchange rate volatility driving the adoption of devaluation as a feasible way out of the financial and economic quagmire.
Currency devaluation clinches to the fiscal policy which focal point on a calculated cutback in the value of the domestic currency to maximize gains in trade.Cooper, as cited in Momodu and Akani currency devaluation, is likewise reflected to be a shocking policy embraced by the government. Hence, most governments reject devaluation in line with their economic pattern. Devaluation occurs where there are trade and payment deficits. With Thailand, China, Mexico, Czech Republic devaluing strongly, willingly or unwillingly, due to deficits in trade exceeding 8% of GDP. Nigeria in 1973 cuddles her first currency devaluation at 10% in response to US devaluation of the same year at foreign exchange reserves growth at 773.5% in 1974. According to International Monetary Fund, report 2015 (IMF) nations can devalue their currency to correct "elementary disequilibrium" in trade and balance of payments. Todaro in 1982 augured that “devaluation is unhealthy for economic development since valued currency equally worsens trade and balance of payment. Momodu and Akani instituted that, the monetarists economists argued the non-existence of devaluation effect on real variables in the long run with the view that exchange rate devaluation affects real trade balance only in the short run without any effect on real variables on the long run in relation to, Purchasing Power Parity (PPP) assumption, which states that increase in exchange rate in the short run leads to increase in output and balance of payments. While devaluation effect, in the long run, neutralize increase in output and a favourable balance of payment by way of the price increase. The arguments above are debatable in nature, which therefore forms the basics to further empirically investigate the implication and affiliation of currency devaluation to the development