Effects of Exchange Rates on Import and Export of Oil and Non-Oil Products in Nigeria: A Multivariate GARCH Modelling Approach

Abstract

An exchange rate is the value of a Nation's currency in terms of the currency of another nation or economic zone. The study aimed to determine the effect of Exchange Ratevolatility on import and export of oil and non-oil products in Nigeria using yearly data from 1981 to 2020.The research employs Constant Conditional Correlation(CCC) and Diagonal Vector Error Correction Heteroskedasticity(DVECH) components of Multivariate GeneralizedAutoregressive Conditional Heteroskedasticity(GARCH) models.We observedthat the distribution is positively skewed which is an indication of a non symmetric series, meaning that there is an asymmetric effects (not normally distributed) in the data. The result of DVECH and CCC exhibit similar behavior showing significant influence ofExchange Rate on importation and exportation of oil and non-oil products.The result from the summary statistics reveals that the money spent by Nigeria government to import non-oil product N3937.533 Billion is on higher rate as compared to what is realized to export our non-oil products N618.4662 Billion, this could put the country at deficit. Conclusively, based on Log likelihood, the DVECH model is found to be the best model.