Exchange rate policy for whom? The political economy of exchange rate liberalization in Nigeria

Adamu Waziri BABAGANA

Abstract


Abstract. The choice between a liberalized or administratively controlled exchange rate system have been a great dilemma in Nigeria. This study advances the exchange rate politics research by examining the political economy factors influencing the decision to liberalize Nigeria’s foreign exchange market. Using the Probit regression model and data for the period 1987 to 2019, the study finds that liberalization of Nigeria’s foreign exchange market is affected by politically influential economic sectors and urban consumers, especially the elite who benefit from the dirigiste exchange rate policy. The results are also consistent with the popular argument that Nigeria’s heavy dependence on importation which translate to persistent trade deficit makes the adoption of a liberalized market-determined exchange rate rather unfeasible. However, the limited flexibility in foreign exchange transactions has the unintended consequences of delivering little benefits to the economy due to the distortions created in the form of rent-seeking and corruption. The findings have implication for the need to pursue a pragmatic exchange rate policy by Nigerian authorities; and for international policy advisors to consider the policymakers’ domestic constraints and degree to which policies can be politically implemented in developing countries like Nigeria.

Keywords. Exchange rate policy; Foreign exchange liberalization; Political economy; Nigeria.

JEL. C35; E58; F31; P00.

Keywords


Exchange rate policy; Foreign exchange liberalization; Political economy; Nigeria.

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DOI: http://dx.doi.org/10.1453/jepe.v9i4.2387

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