An Analysis of the Impact of the Fixed and Flexible Exchange Rate Systems on the Nigerian Economy

Abstract

This study was conducted with the objective of comparing the impact of the fixed and flexible exchange rate systems on the Nigerian economy from (1960-2007). This period has been split into two, namely the period of the fixed exchange rate system (1960-1985) and the period of the flexible exchange rate system (19862007). The impact of these two exchange rate systems on Gross Domestic Product (GDP) and Balance of Payments (BOP) which have been taken to represent the economy has been the focus of this study. The methodology ad opted for this study has been the ex post facto research design which enabled the researcher make use of secondary data on GDP and Balance of Payments for the period to test the f our hypotheses stated in this study. The researcher made use of the Ordinary Square Least (OLS) method otherwise known as the simple regression technique through the u se of the Statistical Package for Social Science(SPSS) to analyze the data. Results show that the fixed exchange rate system has had a significant positive imp act on GDP (Coefficient of NER = 92298.711, tc= 5.124) and an insignificant but positive impact on balance of payments (Coefficient of NER = 2 79.119, te= 0.208). The flexible exchange rate system on the other hand, has had a significant positive impact on GDP (Coefficient of NER= 9468 1.107, tc=6. 624) and a insignificant negative impact on balance of payments (Coefficient of NER = -2916.052, tc=-0.816). It has been recommended that the present system of flexible exchange rates should be fine tuned to allow for some form of government intervention in fixing exchange rates when the need arises. Another recommendation is that the government should adopt a policy of import-substitution to conserve the scarce foreign reserves so as to help improve balance of payments position among other recommendations.