ABSTRACT

This study examined the relationship and impact of exchange rate pass-through on trade openness in Nigeria. We used time series data obtained from CBN for a period of 35 years that is 1980 to 2015. Augmented Dickey-Fuller (ADF) test was used for the unit root test and Johansen’s co-integration test was also conducted to establish short and long run relationships between real exchange rate and independent variables. The result showed two co-integrating equation at 5% or 1% level of significance which establishes the existence of long run relationship among the variables. Ordinary Least Square statistical technique was used to assess the impact of exchange rate pass-through on trade openness in Nigeria. The results showed that Trade openness and inflation rate have negative and significant impacts on exchange rate fluctuations while real interest rate, real gross domestic product and foreign interest rate have positive and significant effect on exchange rate fluctuations in Nigeria. It could be concluded that appreciation of trade openness has negative effect on real exchange rate. Following this, the study recommended among others that Nigerian government should open up and monitortrade inwardly and outwardly by finding and stabilizing a threshold level, beyond which the trade openness will negatively affect the exchange rate.