ABSTRACT

This study evaluated the effect of exchange rate devaluation on balance of payment in Nigeria, using data spanning from 1981 – 2014. The study utilized sufficient theoretical and empirical works to create sound background knowledge about exchange rate and balance of payment, to empirically investigate the desired phenomena, the study adopted the error correction mechanism and the co-integration analysis to test for short – run and long – run relationship between our variables under the OLS framework.in the course of this findings there exist a long run relationship between exchange rate and balance of payment in Nigeria. The study revealed that exchange rate has a negative but significant relationship with balance of payment in Nigeria while the control variables (foreign direct investment and trade openness) have a positive and significant relationship with balance of payment in Nigeria for the period under review. By implication this study suggests that the higher the naira devalues the higher the balance of payment deficit in the Nigerian economy gets. It was thus recommended that to reduce the excessive balance of payment deficit, there is need for government to discourage over-reliance on imported goods and the promotion of domestic export produce is very imperative.