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ANALYSIS OF BALANCE OF PAYMENTS TREND IN NIGERIA: A TEST OF MARSHALL-LERNER HYPOTHESIS
Abstract: The Marshall-Lerner hypothesis states that a nominal devaluation of exchange rate improves the trade balance. But the empirical evidence from Nigeria over the years has been inconsistent and inconclusive with regards to MarshallLerner conditions. Therefore, this study adopts multivariate regression model to ascertain the effects of devaluation of domestic currency on balance of payment of the Nigerian economy as in line with the arguments of the Marshall-Learn (ML) condition. To measure the effect of exchange rate devaluation on the Nigerian balance of payments, exchange rate, trade openness and foreign direct investment were used as the independent variables (exogenous) while balance of payment was used as the dependent variable (endogenous). The result revealed that, a unit devaluation of exchange rate on the average will result to 2.28138 percentage decrease in balance of payment (BOP) through balance of trade mechanism. The study concluded that the Marshall-Lerner condition is not satisfied in the short run in Nigerian case within the time period reviewed, 1970- 2014.
Keywords: Marshall-Lerner hypothesis, BOPs, Devaluation & Nigerian Economy