Effect of Devaluation of Naira on Price Level
EFFECT OF DEVALUATION OF NAIRA ON PRICE LEVEL
IN NIGERIA
BY
¹MR. IKECHI, PRINCE OBINNA MBA (Marketing), MCIM, MNIMN, Lecturer, Marketing Department; Rivers State College Of Education, St. John’s Campus, Port Harcourt, Nigeria. Email: obinnapikechi@yahoo.com. Tel: +234(0)8033429869;
²HON. TAMUNO, MAUREEN PIRIBONEMI KBVM
MBA (Marketing), FCIM, AMNIM. Member, Rep.: Ogu/Bolo Constituency & Chairman,
House Committee on Education Rivers State House of Assembly, Port Harcourt, Nigeria
E Mail: maureentamuno@yahoo.com; Tel: +234(0)8055096230
&
³MR. IGONI, MORDECAI JAPHETH M.ED (Business Education), Lecturer,
Business Admin. Department; Rivers State College Of Education, St. John’s Campus, Port Harcourt, Nigeria. Email:mordecaijaphethigoni@yahoo.com; Tel: +234(0)8055669179
ABSTRACT
Almost all the countries of the world have devalued their currencies at one time or the other with a view to achieving certain economic objectives. This paper intends to demonstrate the existence of contractionary devaluation in Nigeria by drawing from previous studies. In this study however, we intend to evaluate the effect of devaluation on the general price level in Nigeria; determine the possible way out of the dilemma of price increase in Nigeria in the face of devaluation and evaluate the antecedents of entrepreneurs in the event of devaluation in Nigeria. This study is basically empirical in nature; therefore, the research design used is the desk research. Devaluation pushes up import duties, since duties are computed based on the prevailing exchange rate. This puts pressure on both imported finished goods and production costs. Purchasing power of citizens would reduce with increases in price level and this would worsen the pervasiveness of poverty. Speculative activities in the economy will increase as a result of instability. In the aftermath of the misfortunes of the Naira, manufacturers and importers adjusted the prices of their products upwards causing major distortions to the
IN NIGERIA
BY
¹MR. IKECHI, PRINCE OBINNA MBA (Marketing), MCIM, MNIMN, Lecturer, Marketing Department; Rivers State College Of Education, St. John’s Campus, Port Harcourt, Nigeria. Email: obinnapikechi@yahoo.com. Tel: +234(0)8033429869;
²HON. TAMUNO, MAUREEN PIRIBONEMI KBVM
MBA (Marketing), FCIM, AMNIM. Member, Rep.: Ogu/Bolo Constituency & Chairman,
House Committee on Education Rivers State House of Assembly, Port Harcourt, Nigeria
E Mail: maureentamuno@yahoo.com; Tel: +234(0)8055096230
&
³MR. IGONI, MORDECAI JAPHETH M.ED (Business Education), Lecturer,
Business Admin. Department; Rivers State College Of Education, St. John’s Campus, Port Harcourt, Nigeria. Email:mordecaijaphethigoni@yahoo.com; Tel: +234(0)8055669179
ABSTRACT
Almost all the countries of the world have devalued their currencies at one time or the other with a view to achieving certain economic objectives. This paper intends to demonstrate the existence of contractionary devaluation in Nigeria by drawing from previous studies. In this study however, we intend to evaluate the effect of devaluation on the general price level in Nigeria; determine the possible way out of the dilemma of price increase in Nigeria in the face of devaluation and evaluate the antecedents of entrepreneurs in the event of devaluation in Nigeria. This study is basically empirical in nature; therefore, the research design used is the desk research. Devaluation pushes up import duties, since duties are computed based on the prevailing exchange rate. This puts pressure on both imported finished goods and production costs. Purchasing power of citizens would reduce with increases in price level and this would worsen the pervasiveness of poverty. Speculative activities in the economy will increase as a result of instability. In the aftermath of the misfortunes of the Naira, manufacturers and importers adjusted the prices of their products upwards causing major distortions to the
References: Agénor, P. (1991). “Output, Devaluation and the Real Exchange Rate in Developing Countries.” Weltwintschaftliches Archive 127, no Calvo, G. A.; Reinhart, C. M; and Vegh, C.A. (1994). Targeting the Real Exchange Rate: Theory and Evidence Canetti, E and Greene, J. (1991). Monetary Growth and Exchange Rate Depreciation as Causes of Inflation in African Countries: An Empirical Analysis Cooper, R. (1971). An Assessment of Currency Devaluation in Developing Countries. Essays in International Finance, no Copelman, M, and Wermer, A.M. 1996. The Monetary Transmission Mechanism in Mexico. Working Paper, no Diaz-Alejandro, F. C. (1965). Exchange-Rate Depreciation in a Semi-Industrialized Country: The Experience of Argentina, 1955–61 Dornbusch, R; Sturzenbegger; F and Wolf, H. (1990). “Extreme Inflation: Dynamics and Stabilization.” Brooking Papers on Economic Activity, no Edwards, S. (1989). Real Exchange Rates, Devaluation and Adjustment: Exchange Rate Policy in Developing Countries Egwaikhide, F. O.; Chete; L. N. and Falokun, G.O. 1994. Exchange Rate Depreciation, Budget Deficit and Inflation—The Nigerian Experience Elbadawi, I.A. (1990). “Inflationary Process, Stabilisation and the Role of Public Expenditure in Uganda.” Washington, D.C.: World Bank. Gylfason, T., and Schmid, M. (1983). “Does Devaluation Cause Stagflation?” Canadian Journal of Economics 16, no Hoffmaister, A. W., and Vegh, C.A. 1996. “Disinflation and the Recession-Now-versus-Recession-Later Hypothesis: Evidence from Uruguay.” IMF Staff Papers 43, no Kamas, L. (1995). “Monetary Policy and Inflation under the Crawling Peg: Some Evidence from VARs for Colombia.” Journal of Development Economics 46, no Kamin, S. B. 1996. “Exchange Rates and Inflation in Exchange-Rate Based Stabilization: An Empirical Examination.” International Finance Discussion Paper, no Kamin, S. B., and Klau, M. (1998). “Some Multi-country Evidence on the Effects of Real Exchange Rates on Output.” International Finance Discussion Papers, no Kamin, S. B., and Rogers, J. H. (1997). “Output and the Real Exchange Rate in Developing Countries: An Application to Mexico.” International Finance Discussion Paper, no Khan, G. A. (1989). “The Output and Inflation Effects of Dollar Depreciation.” Federal Reserve Bank of Kansas City, Research Working Paper 85-05 London, A. (1989). “Money, Inflation and Adjustment Policy in Africa: Some Further Evidence.” African Development Review 1, no Montiel, P. (1989). “Empirical Analysis of High-Inflation Episodes in Argentina, Brazil and Israel.” IMF Staff Papers 36, no Morley, S. A. (1992). “On the Effect of Devaluation During Stabilization Programs in LDCs.” Review of Economics and Statistics 74, no Ndung’u, N. (1993). Price and Exchange Rate Dynamics in Kenya: An Empirical Investigation (1970– 1993) Odedokun, M. O. (1996). “Dynamics of Inflation in Sub-Saharan Africa: The Role of Foreign Inflation; Official and Parallel Market Exchange Rates; and Monetary Growth.” Dundee, Scotland: University Rodriguez, G.H., and Diaz G. G. (1995). “Fluctuations Macroeconomics en la Economia Peruana” Working Paper Rogers, J. H., and Wang, P. (1995). “Output, Inflation and Stabilization in a Small Open Economy: Evidence from Mexico.” Journal of Development Economics 46, no Santaella, J, and Vela, A. E. (1996). The 1987 Mexican Disinflation Program: An Exchange Rate– Based Stabilization? IMF Working Paper WP/96/24