CHAPTERONE

INTRODUCTION

1.1BACKGROUNDOFSTUDY
Thestudyofthepersistentdepreciationofthenairacurrencyontheeconomicgrow
thofNigeriaaimstoevaluatetheimpactofcurrencydepreciationonNigeria’secon
omy.Thisresearchprojectaimstoinvestigatetherelationshipbetweenthecontin
uousdepreciationofthenairaanditsimpactoneconomicgrowthinNigeria.TheNi
geriancurrencyhascontributedtothelossofvalueoveralongperiod.Lispesy(197
7)definedcurrencydepreciationasafallinthefreemarketvalueofdomesticcurren
cyintermsofforeigncurrencies.Thepersistentlyweakcurrencyhasbeenasubjec
tofconcernforpolicymakers,investors,andcitizensalike.Thestudywillprovidein
sightsintothecausesandconsequencesofnairadepreciation,analyzeitsecono
micimplications,andproposepotentialsolutionsforsustainableeconomicgrowt
h.Thesignificanceofthisstudyliesinitspotentialtoprovideinsighttopolicymatters
andotherstakeholdersonhowtoaddressthepersistentdepreciationofthenairac
urrency.Thefindingsoftheresearchcouldserveasavaluableguideforpolicymak
ersinformulatingmonetaryandfiscalpoliciestowardmitigatingtheimpactofcurre
ncydepreciationontheNigerianeconomy.

Ultimately,thestudyseekstocontributetothebodyofknowledgeontherelations
hipbetweencurrencydepreciationandeconomicgrowthinNigeriaandtoprovider
ecommendationsforfutureresearchinthisarea.
1.2 STATEMENTOFTHEPROBLEM

Thedepreciationofthenairapersistentlyhasvariouseffectsontheecono
myofNigeria.Theinstabilityandcontinuousdepreciationofthenairahavedoneal
otofdamagetotheeconomyofthenation.Theeffectontheeconomyincludesadec
liningstandardoflivingforthepopulace,increasedcostofproductionpushinflatio
n,etc.

ThedepreciationoftheNigeriancurrency(naira)hasbeenanongoingissueof
concern,asithashadasignificantimpactonthecountry'seconomicgrowth.Thep
ersistentlyweakcurrencyhasraisedseveralchallengesanduncertaintiesinvario
ussectorsoftheeconomy.

Thisproblemstatementencompassesseveralrelatedsub-
suggestionsthatneedtobeaddressedwhatarethemajorfactorscontributingtoth
econtinuousdepreciationofthenairacurrency,thefactorsthatcontinuousdeprec
iationofnairacurrency,factorsthatcontributetothepersistentdepreciationofthen
airacurrencyare,lowoilprices,inflationarypressures,inadequateforexreserves
,thebalanceofpaymentdisequilibrium,externalshocks.Anotherishowthedepre
ciationofthenairaaffectskeymacroeconomicindicatorssuchasGDPgrowth,infl
ation,unemployment,andforeigndirectinvestment(FDI),whichspecificindustri
esorsectorsaremostaffectedbythecontinuousdeclineinthenairavalue.Arethey
long-
termimplicationsofnairadepreciationoneconomicgrowth,suchasreducedcom
petitiveness,decreasedforeigninvestment,andincreasedrelianceonimports?
Whatarethepotentialpolicymeasuresandstrategies
thatcanbeimplementedtomitigatethenegativeeffectsofnairadepreciationandf
ostersustainedeconomicgrowthinNigeria?

Byaddressingthesequestions,theresearchprojectaimstoprovideacomprehen
siveunderstandingoftheimpactofnairadepreciationoneconomicgrowthinNiger
iaandproposerelevantsolutionstocounteractitsadverseeffects.

1.3OBJECTIVESOFTHESTUDY

Thegeneralobjectiveofthisstudyistoexaminetheimpactofnairadepreciationon
economicgrowthinNigeria.Thespecificobjectivesare

1. Toexaminethereasonsbehindthecontinuousdepreciationofthenairacurr
ency.
2. Toidentifythespecificsectorandindustriesmostaffectedbythecontinuous
declineinthenairavalue.
3. Toinvestigatetheimpactofnairadepreciationonkeymacroeconomicindic
ators.

1.4RESEARCHQUESTIONS
1. Whatarethereasonsbehindthecontinuousdepreciationofthenaira’scurre
ncy?
2. Whatarethespecificsectorsandindustriesthataremostaffectedbythecont
inuousdepreciationinthenaira’svalue?
3. Howdoesthenairadepreciationaffectkeymacroeconomicindicators?

1.5RESEARCHHYPOTHESES
Fromthequestionstatedabovethefollowingaretheresearchhypothesestobee
mpiricallyinvestigated.

Ho;thereisnosignificantrelationshipbetweenthecontinuousdepreciationinthe
naira’svalueandcertainsectorsandindustries.

Ho;thereisnosignificantrelationshipbetweennairadepreciationandkeymacroe
conomicindicators.

1.6SCOPEOFTHESTUDY

Thestudywillspecificallyinvestigatetherelationshipbetweenthepersistentdepr
eciationofthenairacurrencyanditsimpactoneconomicgrowthinNigeria.Theres
earchwillexaminekeyvariables,suchasexchangerate,inflation,grossdomestic
product(GDP),foreigndirectinvestment(FDI),tradebalance,andotherrelevant
economicindicators.Thestudywillbeanalyzedforaperiodoffive(5)decades(197
0-2020)toassessthelong-
termimpactofcurrencydepreciationoneconomicgrowthinNigeria.Theresearch
willconcentrateonNigeriaasawhole,itmayalsoinvolveareviewofexistingliteratu
reandpolicydocumentsrelatedtothetopic,anditwillemployquantitativemethods
toanalyzerelevantdatasuchasstatisticalmodelandtimeseriesanalysis.

1.7SIGNIFICANCEOFTHESTUDY

Thefindingsofthisstudywillprovidevaluableinsightstopolicymakers,centralban
ks,andeconomicinstitutionsinNigeria.Understandingtherelationshipbetween
currencydepreciationandeconomicgrowthcanassistinformulatingappropriate
monetaryandfiscalpolicies.Nigeriahasexperiencedpersistentcurrencydepreci
ationinrecentyears,byexaminingitsimpactoneconomicgrowth,thisstudycanco
ntributetodiscussionsonmaintainingcurrencystability,managinginflation,andp
romotingaconducivebusinessenvironment.Thisresearchcancontributetothee
xistingbodyofknowledgebyprovidingempiricalevidenceontheimpactofcurrenc
ydepreciationoneconomicgrowthinNigeria.Thisstudywillshowhowcurrencyde
preciationcanaffectthetradebalanceintheglobalmarket,andaffectinvestmentd
ecisionsbothdomesticandforeign.

However,theoverallsignificanceofthisstudyliesinitspotentialtoinformpolicy-
making,guideinvestmentdecisions,promoteeconomicstability,andcontributet
oacademicresearch.

1.8DEFINITIONOFTERM:

1.DepreciationoftheNaira:Depreciationreferstoadecreaseinthevalueofaco
untry'scurrencyrelativetoothercurrenciesintheforeignexchangemarket.Inthe
contextofthestudy,itrepresentsaprolongedandcontinuousdeclineinthevalue
oftheNigeriancurrency,theNaira,againstothermajorcurrencies.

2.EconomicGrowth:Economicgrowthreferstoanincreaseintherealoutputof
goodsandservicesproducedbyaneconomyoveraspecificperiod.Itisoftenmea
suredbyindicatorssuchasGrossDomesticProduct(GDP),whichreflectstheov
erallsizeandperformanceoftheeconomy.

3.PersistentDepreciation:Persistentdepreciationreferstoasustaineddeclin
einthevalueofthecurrencyoveranextendedperiodoftime.Itimpliesthatthedepr
eciationoftheNigerianNairahasbeencontinuousandprolonged,ratherthante
mporaryorshort-lived.

4.ExchangeRate:Theexchangerateistherateatwhichonecurrencycanbeexc
hangedforanother.Inthecontextofthestudy,itrepresentstherelativevalueofth
eNigerianNairacomparedtoothercurrencies,suchastheUSDollar,Euro,orBrit
ishPound.

5.Inflation:Inflationreferstothegeneralincreaseinpricesofgoodsandservices
inaneconomyovertime.Currencydepreciationcancontributetoinflationarypre
ssuresbymakingimportsmoreexpensiveandleadingtohigherimportcosts,whi
chcanbepassedontoconsumers.

6.ForeignDirectInvestment(FDI):Foreigndirectinvestmentreferstoinvestm
entintheformofcapital,technology,orresourcesfromforeignentitiesintoacount
ry'seconomy.CurrencydepreciationcaninfluenceFDIbyaffectingthecostofinv
estments,theattractivenessofthedomesticmarket,andthepotentialreturnsoni
nvestment.

7.TradeBalance:Tradebalancemeasuresthedifferencebetweenacountry'se
xportsandimports.Currencydepreciationcanimpactthetradebalancebyaffecti
ngthecompetitivenessofexportsandthecostofimportedgoodsandservices.

8.EconomicStability:Economicstabilityreferstoastateofsteadyandsustaina
bleeconomicconditions,characterizedbylowinflation,balancedtrade,stablec
urrencyvalues,andconsistenteconomicgrowth.Thestudyexamineshowthepe
rsistentdepreciationofthenairacurrencycanaffectoveralleconomicstabilityin
Nigeria.