The impact of foreign exchange rate on international trade in Nigeria: Evidence from the non-oil sector

Abstract

This study investigates the effects of exchange rate, inflation, and imports on non-oil exports in Nigeria from January 2015 to December 2025 using monthly time-series data. The objectives are to determine the short-run and long-run impacts of these macroeconomic variables on non-oil export performance and to assess the speed of adjustment toward long run equilibrium. Estimation employs the Johansen cointegration technique and the Vector Error Correction Model (VECM). Pre-estimation unit root testing confirms that all variables are integrated of order one, I(1). The findings reveal that exchange rate depreciation and import activity exert significant positive effects on non-oil exports, while inflation exerts a significant negative effect. The error correction term indicates that approximately 73% of monthly deviations from long-run equilibrium are corrected each month. Diagnostic tests confirm the absence of serial correlation, heteroskedasticity, and structural instability. The study concludes that macroeconomic stability and well-coordinated trade policy are prerequisites for sustainable non-oil export growth in Nigeria. Policymakers are advised to pursue exchange rate stability, inflation control, and facilitation of productive imports.