The Effect Of Importation Of Refined Petroleum Products On Exchange Rate In Nigeria: 1990-2015

This study examines the effect of importation of refined petroleum products on exchange rate in Nigeria. The study adopted secondary time series data and employedeconometric tools (unit root test, Johansen cointegration technique and error correlation model analysis) to estimate the data. The data were mainly from Central Bank of Nigeria (CBN) annual bulletin and National Bureau of Statistics (NBS) on Nigeria foreign trade summary annual report. The variable of interest are exchange rate (EXR), gross domestic product growth rate (GDPg), inflation rate (INFR), import of refined kerosene (RKSM), import of refined motor spirit (RMSM), total import of petroleum product (IMP) GDPg, which underwent a unit root test using the Augmented Dickey-Fuller (ADF) test and four variables (GDPg, INFR, RKSM, RMSM)were found to be stationary at level while IMP and EXR, were stationary at first difference of integration. In the long-run regression result, the R2 which was 0.956532 is highly significant which shows that the model has a good fit for prediction and forecasting. The study reveals that all the variables are positive and statistically significance on exchange rate except GDPg, which shows a negative impact on exchange rate in Nigeria. It was evidence that importation of refined petroleum products is as a result of poor refineries, poor turn around maintenance, obsolete technology, low capacity and lack of government will to invest in oil sector, shortages of the petroleum products for domestic use. The paper recommends that the country refineries should be deregulated or privatized or re-position as this will reduce the over dependency on the importation of the petroleum products as well as building new infrastructure in the oil sector to meet up with the domestic demand and as well reduce the pressure on the exchange rate.