Critical factors affecting Nigeria's foreign exchange flows

Abstract

This study articulates main factors that affected foreign exchange flows in Nigeria between 1987 and 1997. Foreign exchange inflow is made up of autonomous receipts. gifts and borrowed resources. Factors such as exchange rate, monetary expansion and fiscal imbalances, capital flight, excessive and spurious demand for foreign exchange and debt service burden, were identified in the study as factors which affect foreign exchange. Results from the regression analysis indicated that all the variables met a priori expectations in terms of statistical significance and correctness of signs. The study also established a significant impact of imports and external debt burden on foreign exchange flow, resulting partly from the absence of genuine industrialisation strategy that could lead to the diversification of the country's export base. It further showed that the gains of any policy could impact more on the economy if the exchange rate is properly aligned to its realistic level through appropriate exchange rate management strategy that will encourage repatriation of export proceeds without coercion, boost foreign direct investment and curtail capital flight.