Volatility of Foreign Exchange Rate and Infrastructural Development: An ARCH/GARCH Analysis From Nigeria (1986-2020)
Dele, Jacob Ojomolade *
Department of Accounting, Finance and Taxation, Caleb University, Imota, Lagos, Nigeria.
Ifeanyi Joseph Ugwulali
Department of Accounting, Finance and Taxation, Caleb University, Imota, Lagos, Nigeria.
Adewale Joshua Adejuwon
Department of Management and Accounting, Lead City University, Ibadan, Nigeria.
*Author to whom correspondence should be addressed.
Abstract
Living standard of citizen and economic growth depends entirely on infrastructural development and exchange rate stability in a nation, therefore, the foreign exchange rate volatility on infrastructural development in Nigeria, 1986-2020.was examined with contradictory empirical. Central Bank of Nigeria provides the dataset analysed by ARCH/GARCH model along-side with vector model. Empirical findings revealed both negative and positive relationship with capital expenditures resulting from exchange rate and total exports on capital expenditures, as total imports have positive impact. There is negative impact between external debt service payment and capital expenditures. Co-integrating coefficient revealed a slow adjustment speed parameter of about 21 percent. The ARCH/GARCH estimates revealed that exchange rate is controlled by its own GARCH components rather than ARCH factors or shocks. Therefore, exchange rate volatility determined its own shocks by GARCH. The study recommends that policy inconsistency regarding exchange rate volatility should be discouraged and infrastructural development should be prioritised by the three tiers of government as it is germane to welfare and living standard of the citizen.
Keywords: Capital expenditures, exchange rate volatility, exports, infrastructural development