Supply Side Liberalization and Foreign Exchange Management in Nigeria

Abstract

The daunting challenge of foreign exchange control in Nigeria has remained a burdensome economic issue to deal with economic management. Virtually in every socio-political debate, the exchange rate management is yet to be a resolved paradigm. This study empirically examined the supply side liberalization as proxy of personal diaspora remittance and exchange rate management in Nigeria. Technique of Vector Autoregression (VAR) was employed to examine the direction of shocks arising from the exchange movement with respect to diaspora remittances (REMIT), and foreign direct investment (FDI). The findings showed that, growth of remittance results in exchange rate appreciation when pass through official channel, and vice versa. While, controlling for FDI, exchange rate movement improves with growth of FDI in the short run, and decreases due to improper capital control mechanism. Policy recommendation has it that: The Nigerian Monetary Authority should harmonize the dual exchange rate aimed at maximizing the gains of capital control and achieve domestic monetary policy success; Government should implement friendly tax policies, zero charges and lowered administrative bottlenecks to clearing personal diaspora remittance inflow aimed at minimizing diversion of foreign capital into unofficial route.