A Dynamics of Exchange Rate and the Performance of Service Industry: TheNigerian Experience
Keywords:
The re-basing of the Nigerian economic data since 2013 has shown the growing relevance of the service sector to the economic development of Nigeria. The need to investigate the nexus between the service sector and macroeconomic variables become imperative in view of inadequate research attention in the past and the present desirable concern for policy shifts in favor of promoting activities in the sector. It is in this context that our paper considered the effects of exchange rate behavior on the performance of the service industry in Nigeria. More so that it is becoming increasingly clear that the openness of the Nigerian economy to the outside world and the seeming dollarization of earnings from economic activities, even with high local content, have varied impacts on economic behavior in many sectors of the economy. A comprehensive study was carried out to determine the relationship between the dynamics of exchange rate and the service industry activities. The data used include services, exchange rates, money supply, domestic credit, interest rate and in?ation covering the period of 19812015. UsingtheARDL,a10%pointincreaseinexchangeratevolatilityanddomesticcreditincreasesserviceoutput growth (SER) by 0.68% and 5.15% respectively. The paper thus suggest that there must be reforms in government polices to remove barriers to entry by private investors into certain services in order to prevent market distortions and reduce cost of capital so as to enhance an integrated services-manufacturing industrial growth. JEL Classi?cation: F31, L81, L91, L96, G4Abstract
The re-basing of Nigeria’s economic data since 2013 has revealed the growing relevance of the service sector to the country’s economic development. Consequently, investigating the nexus between the service sector and key macroeconomic variables has become imperative, given the inadequate research attention in the past and the increasing policy interest in promoting activities within the sector. In this context, this paper examines the effects of exchange rate behavior on the performance of the service industry in Nigeria.This issue is particularly important as the increasing openness of the Nigerian economy and the apparent dollarization of earnings from economic activities—even those with high local content—have exerted varying influences on economic behavior across different sectors. A comprehensive empirical analysis was conducted to determine the relationship between exchange rate dynamics and service sector activities.The study utilizes annual data on service output, exchange rate, money supply, domestic credit, interest rate, and inflation, covering the period 1981–2015. Using the Autoregressive Distributed Lag (ARDL) approach, the results indicate that a 10 percent increase in exchange rate volatility and domestic credit leads to an increase in service sector output growth (SER) by 0.68 percent and 5.15 percent, respectively.The findings suggest the need for reforms in government policies aimed at removing barriers to entry for private investors in selected service industries. Such reforms would help prevent market distortions, reduce the cost of capital, and promote integrated growth between the service and manufacturing sectors.JEL Classification: F31, L81, L91, L96, G4
