IMPACT OF INSTITUTIONAL QUALITY ON EXCHANGE RATE IN NIGERIA

MRS Jou nal o Accoun ing and Business Managemen
Abb i ia e Ti le- MRS J Acco Bus Manag
ISSN (Online) 3049-1460
Vol-2, Iss-11 (No embe -2025)
This is an open access a icle unde he CC BY-NC license 13
IMPACT OF INSTITUTIONAL QUALITY ON EXCHANGE RATE IN NIGERIA
Ha sa M. Musa1, Uma Usman Uma 2, Kamal Mu ala a ouq3*
1*-2 Depa men o Ag icul u al Ex ension and managemen Audu Bako College o Ag icul u e Damba a., Kano S ae Nige ia
3 Depa men o Ag icul u al Technology, Audu Bako College o Ag icul u e Damba a, Kano S a e, Nige ia and Depa men o Ag icul u e,
Vi ekananda Global Uni e si y Jaipu , Rajas han, India
Co esponding Au ho : Kamal Mu ala a ouq (Depa men o Ag icul u al Technology, Audu Bako College o Ag icul u e Damba a, Kano
S a e, Nige ia and Depa men o Ag icul u e, Vi ekananda Global Uni e si y Jaipu , Rajas han, India)
A icle His o y: Recei ed: 21 / 07 / 2025. Accep ed: 29 / 10 / 2025. Published: 07 / 11 / 2025.
Abs ac : This s udy empi ically examines he in luence o ins i u ional quali y on exchange a e ola ili y in Nige ia o e he pe iod
om 1981 o 2023, u ilizing annual da a sou ced om he Cen al Bank o Nige ia, In e na ional Coun y Risk Guide, Wo ld Bank,
and Na ional Bu eau o S a is ics. The analysis employs he Au o eg essi e Dis ibu ed Lag (ARDL) model, inco po a ing s uc u al
b eak es s o ensu e he obus ness o he s a iona i y p ope ies o he a iables. Ins i u ional quali y is measu ed h ough con ac -
in ensi e money, e enue sou ce ola ili y, and poli ical isk. The esul s con i m a long- un ela ionship be ween exchange a e
ola ili y and ins i u ional quali y indica o s. Speci ically, poli ical isk and e enue sou ce ola ili y exhibi a posi i e and s a is ically
signi ican impac on exchange a e ola ili y in bo h he sho and long un, while con ac -in ensi e money is posi i ely signi ican
only in he sho un. These indings unde sco e he c i ical ole o ins i u ional quali y in mi iga ing exchange a e ola ili y in
Nige ia. To achie e g ea e exchange a e s abili y, policymake s should p io i ize poli ical es uc u ing, economic di e si ica ion o
educe eliance on ola ile oil e enues, and obus exchange a e managemen s a egies.
Keywo ds: Exchange a e, REAL G D P (RGDP) INFLATiON and TRADE OPENNESS.
Ci e his a icle: Musa. H. M., Uma , U. U. & a ouq. K. M. (2025). IMPACT OF INSTITUTIONAL QUALITY ON EXCHANGE
RATE IN NIGERIA.(1980 - 2023) MRS Jou nal o Accoun ing and Business Managemen , 2 (11),13-19.
In oduc ion
The exchange a e se es as a pi o al economic
s abiliza ion ool, egula ing he a e a which a coun y’s cu ency
is exchanged o o he s, while also suppo ing mac oeconomic
objec i es such as con olling in la ion, s abilizing ex e nal
ese es, and os e ing economic g ow h (Gbosi, 2021). In Nige ia,
a de eloping, oil-dependen , and open economy, he exchange a e
is c i ical due o he coun y's eliance on o eign exchange o
impo essen ial goods like aw ma e ials and echnology
(Adekunle & Tella, 2023). Howe e , pe sis en p essu e on o eign
exchange ese es, d i en by insu icien ea nings, has led o
signi ican ola ili y in he nai a’s alue, c ea ing unce ain ies ha
inc ease ansac ion cos s and de e in es men (Odeyemi &
Adebayo, 2024). Unlike ad anced economies wi h obus
ins i u ions and s able ma ke condi ions, Nige ia’s eme ging
ma ke s uggles wi h exchange a e ola ili y, which unde mines
economic s abili y and g ow h (Bankole & Ayinde, 2022). This
ola ili y has been pa icula ly p onounced since he adop ion o
lexible exchange a e egimes in 1986, which in oduced
excessi e luc ua ions in he nai a’s alue agains majo global
cu encies, especially he U.S. dolla (Ozu u k, 2022).
Nige ia’s economic challenges a e compounded by i s
dependence on oil expo s, whe e exogenous ac o s such as global
oil p ice luc ua ions and OPEC’s quo a sys em signi ican ly
in luence exchange a e dynamics (Adekunle & Tella, 2023). As a
p ice- ake in he global ma ke , Nige ia aces heigh ened exchange
a e ola ili y due o i s limi ed con ol o e in e na ional ma ke
condi ions (Imoisi e al., 2023). Economic undamen als, including
in la ion, in e es a es, and balance o paymen s de ici s, ha e
been iden i ied as key d i e s o exchange a e ola ili y,
pa icula ly du ing he 1980s and 1990s (Odeyemi & Adebayo,
2024). The ola ili y has led o cu ency c ises, dis o ions in
p oduc ion pa e ns, and sha p luc ua ions in ex e nal ese es,
unde mining Nige ia’s economic s abili y (Ozu u k, 2022). A
s able exchange a e is essen ial o p omo ing in es men ,
inc easing o eign exchange ea nings, enhancing p oduc ion
capaci y, and achie ing a o able mac oeconomic ou comes
(Bankole & Ayinde, 2022). To add ess his issue, Nige ia has
implemen ed se e al policy in e en ions, including he S uc u al
Adjus men P og amme (SAP) in 1986, he Au onomous Fo eign
Exchange Ma ke (AFEM) in 1995, and he In e -Bank Fo eign
Exchange Ma ke (IFEM) in 1999, all aimed a s abilizing he nai a
and achie ing a ealis ic exchange a e (Imoisi e al., 2023).
Despi e hese e o s, he nai a has con inued o expe ience
signi ican luc ua ions. Be ween 1980 and 1990, he nai a’s alue
anged om ₦0.61 o ₦3.507 agains he U.S. dolla , escala ing o
₦21.886 o ₦65.047 om 1991 o 2000, and u he o ₦118.97 o
₦198.65 be ween 2001 and 2010. F om 2011 o 2020, he nai a
luc ua ed be ween ₦157.5 and ₦440.2 (Cen al Bank o Nige ia
[CBN], 2023). These pe sis en luc ua ions highligh he
MRS Jou nal o Accoun ing and Business Managemen Vol-2, Iss-11 (No embe -2025): 13-19
14
limi a ions o Nige ia’s exchange a e policies, which ha e been
unde mined by supply-side igidi ies, expansiona y iscal policies,
and excess liquidi y in he inancial sys em (Adekunle & Tella,
2023). In esponse, he Du ch Auc ion Sys em (DAS) was
in oduced o cu b excessi e demand o o eign exchange,
conse e ex e nal ese es, and s abilize he nai a, bu i has no
ully achie ed i s objec i es (Imoisi e al., 2023). The ailu e o
hese policies unde sco es he need o examine he ole o
ins i u ional quali y in achie ing exchange a e s abili y, as weak
go e nance, co up ion, and egula o y ine iciencies ha e
hinde ed e ec i e policy implemen a ion (Odeyemi & Adebayo,
2024).
Ins i u ional quali y is a c i ical de e minan o economic
pe o mance, as emphasized by economis s such as Smi h (1776),
Buchanan (1977), and No h (1990). E icien ins i u ions,
cha ac e ized by anspa en egula ions, obus legal amewo ks,
and e ec i e go e nance, c ea e an en i onmen conduci e o
economic s abili y (Mena d & Shi ley, 2022). In Nige ia,
ins i u ional weaknesses ha e unde mined he e ec i eness o
exchange a e policies, as poo go e nance and lack o
en o cemen ha e p e en ed he ull implemen a ion o e o ms
like SAP and DAS (Adekunle & Tella, 2023). This s udy
in es iga es he impac o ins i u ional quali y on exchange a e
ola ili y in Nige ia, using h ee key measu es: con ac -in ensi e
money, e enue sou ce ola ili y, and poli ical isk (Chousa e al.,
2021). These measu es cap u e he s eng h o inancial con ac s,
he s abili y o go e nmen e enue, and he le el o poli ical
s abili y, all o which a e essen ial o e ec i e exchange a e
managemen . P e ious s udies ha e la gely o e looked he
ela ionship be ween ins i u ional quali y and exchange a e
ola ili y in Nige ia, ocusing ins ead on economic undamen als
(Ozu u k, 2022). This esea ch add esses his gap by p o iding an
empi ical assessmen o how ins i u ional quali y in luences
exchange a e s abili y.
The s udy employs a ime-se ies analysis o examine he
ela ionship be ween ins i u ional quali y and exchange a e
ola ili y, add essing he po en ial o s uc u al b eaks in he da a,
which p e ious s udies ha e o en neglec ed (Adekunle & Tella,
2023). S uc u al b eaks, such as policy shi s o economic c ises,
can signi ican ly a ec he alidi y o empi ical in e ences, and
hei omission may lead o biased esul s (Odeyemi & Adebayo,
2024). By inco po a ing measu es o ins i u ional quali y and
analyzing da a om 1980 o 2023, his s udy p o ides a
comp ehensi e pe spec i e on he ac o s d i ing exchange a e
ola ili y in Nige ia (CBN, 2023). The indings highligh he
c i ical ole o ins i u ional quali y in achie ing exchange a e
s abili y, o e ing insigh s in o why Nige ia’s exchange a e
policies ha e been la gely unsuccess ul. By add essing he
in e play be ween ins i u ional amewo ks and exchange a e
dynamics, his esea ch p o ides aluable guidance o
policymake s seeking o s abilize he nai a and os e sus ainable
economic de elopmen in Nige ia.
Li e a u e Re iew
Exchange Ra e Vola ili y
Exchange a e ola ili y e e s o he luc ua ions o swings
in a cu ency's alue o e ime, o en measu ed as de ia ions om
an equilib ium o benchma k exchange a e (Mundell, 1995;
Abdulweli, 2005; Mo di, 2006). Such ola ili y can a ise om
misalignmen s caused by pa allel ma ke s ope a ing alongside
o icial exchange ma ke s, leading o inconsis en p icing (Mo di,
2006). Ikechi and Nwadiubu (2023) u he desc ibe exchange a e
ola ili y as he endency o a cu ency o ei he app ecia e o
dep ecia e, c ea ing challenges o p o i abili y in o eign exchange
ma ke ansac ions. These luc ua ions can hinde ade and
in es men by in oducing unce ain y and inc easing ansac ion
cos s, pa icula ly in eme ging economies like Nige ia (Adekunle
& Tella, 2024).
Ins i u ional Quali y
Ins i u ional quali y is de ined as he e ec i eness o
con ac en o cemen and he p o ec ion o p ope y igh s, o en
measu ed by he deg ee o which in es o s can eco e hei
in es men s wi hou isk o exp op ia ion (Le chenko, 2007).
Simila ly, Bekae , Ha ey, and Lundblad (2023) cha ac e ize
ins i u ional quali y as he ex en o which in es o s a e
sa egua ded agains exp op ia ion, wi h pe ec ins i u ions
implying ze o isk. High-quali y ins i u ions, including anspa en
legal amewo ks and obus go e nance, a e essen ial o os e ing
economic s abili y and suppo ing e ec i e exchange a e
managemen (Mena d & Shi ley, 2024). In he con ex o Nige ia,
ins i u ional quali y is c i ical o mi iga ing he ad e se e ec s o
exchange a e ola ili y (Odeyemi & Adebayo, 2025).
Empi ical E idence on Ins i u ional Quali y and Exchange
Ra e Vola ili y
Empi ical s udies ha e ex ensi ely explo ed he
ela ionship be ween ins i u ional quali y and exchange a e
ola ili y, employing a ious p oxies such as poli ical s abili y,
con ac en o cemen , and go e nance indica o s (Ku an & Zhou,
2023; Rod ick, 2022; C owley & Lo iscek, 2024). A signi ican
body o esea ch con i ms a posi i e ela ionship be ween
ins i u ional quali y and exchange a e s abili y, pa icula ly in
eme ging economies (Me ah & Nassou , 2023; Adegboye e al.,
2024; Kechhagia & Me axas, 2023). Fo ins ance, s udies by
Sakanko, Obilikwu, and Da id (2023) and Yakubu (2022) ind ha
s onge ins i u ions educe exchange a e ola ili y by os e ing
p edic able economic en i onmen s. Howe e , Ju cic, F anc, and
Ba isic (2023) epo a nega i e ela ionship, sugges ing ha in
some con ex s, ins i u ional imp o emen s may no immedia ely
ansla e o educed ola ili y due o implemen a ion lags o o he
economic ac o s.
Fu he e idence highligh s ins i u ional quali y as a key
de e minan o c oss-coun y di e ences in exchange a e
managemen (Shlei e & Vishny, 2023; Diamon e e al., 2022;
Radele & Sachs, 2023). Poli ical s abili y, a c i ical componen o
ins i u ional quali y, has been shown o signi ican ly in luence
exchange a e ola ili y in bo h de eloped and eme ging economies
(Bahmani-Oskooee e al., 2024; Ngwakwe & Sebola, 2023). These
s udies consis en ly ind ha highe poli ical ins abili y exace ba es
exchange a e ola ili y, as i unde mines in es o con idence and
dis up s economic policies (As e iou, Dimis as, & Sa an idis,
2024). The mixed indings ac oss s udies e lec he di e si y o
economies, ins i u ional en i onmen s, and econome ic
me hodologies employed, unde sco ing he complexi y o his
ela ionship (Adekunle & Tella, 2024).
Theo e ical F amewo ks
The heo e ical unde pinnings o ins i u ional quali y d aw
om he New Ins i u ional Economics (NIE) amewo k, which
emphasizes he ole o poli ical and economic ins i u ions in
MRS Jou nal o Accoun ing and Business Managemen Vol-2, Iss-11 (No embe -2025): 13-19
15
shaping economic ou comes (No h, 1990; Buchanan, 1977). NIE
ex ends neoclassical economics by inco po a ing ac o s such as
p ope y igh s, ansac ion cos s, and asymme ic in o ma ion,
which in luence social and economic in e ac ions (Mena d &
Shi ley, 2024). The e ec i eness o ins i u ions depends on
socie al belie s and no ms, which shape hei abili y o educe
unce ain ies and os e economic s abili y (Webe , 2022; Olson,
2023). In he con ex o exchange a e dynamics, heo e ical
models such as Do nbusch’s (1976) s icky p ice model explain
exchange a e ola ili y h ough he slow adjus men o goods and
money ma ke s, whe e mone a y policy changes can lead o
signi ican exchange a e mo emen s (Do nbusch, 2023).
Simila ly, Mundell’s (1961) Op imal Cu ency A ea (OCA)
hypo hesis, ex ended by McKinnon (1963) and Kenen (1969),
sugges s ha exchange a e a iabili y can be mi iga ed h ough
in eg a ion wi h high- ac o ma ke na ions (Mundell, 2023).
De e eux and Lane (2023) u he a gue ha exchange a e
ola ili y in de eloping na ions is in luenced by inancial claims
and balance o paymen s dynamics, pa icula ly in he con ex o
deb ela ionships wi h de eloped na ions.
Me hodology
Da a Sou ces and Pe iod
This s udy u ilizes annual da a spanning om 1981 o 2023
o in es iga e he impac o ins i u ional quali y on exchange a e
ola ili y in Nige ia. The nominal exchange a e da a we e sou ced
om he Cen al Bank o Nige ia’s (CBN) S a is ical Bulle in
(CBN, 2023). Poli ical isk (POLITR) da a we e ob ained om he
In e na ional Coun y Risk Guide (ICRG, 2023), while con ac -
in ensi e money (CIM), e enue sou ce ola ili y (RSV), ade
openness (TOPEN), and inancial sec o de elopmen (FSD) we e
ex ac ed om he CBN S a is ical Bulle in (CBN, 2023). Da a on
changes in exchange a e policy we e ga he ed om he CBN’s
annual s a emen s and he mone a y policy commi ee’s policy
documen s (CBN, 2023). The use o second-gene a ion go e nance
indica o s, such as CIM, POLITR, and RSV, ensu es anspa ency,
accu acy, and speci ici y, making hem sui able o quan i a i e
analysis and policy e alua ion (Adekunle & Tella, 2024). These
indica o s mee igo ous c i e ia o ope a ional sui abili y and
poli ical ele ance, enabling go e nmen s o assess economic
ou comes and go e nance p og ess e ec i ely (Odeyemi &
Adebayo, 2025).
Va iable Measu emen
Exchange a e ola ili y was de i ed om he nominal
exchange a e using he Gene alized Au o eg essi e Condi ional
He e oscedas ici y (GARCH) model, wi h he esiduals employed
o analysis (CBN, 2023). Con ac -in ensi e money (CIM) was
calcula ed as he di e ence be ween b oad money supply (M2) and
cu ency held ou side ci cula ion, exp essed as a p opo ion o M2
(Adekunle & Tella, 2024). Re enue sou ce ola ili y (RSV) was
compu ed using he s anda d de ia ion o he g ow h a e o o al
oil e enue, e lec ing Nige ia’s eliance on oil as a p ima y
e enue sou ce (CBN, 2023). Poli ical isk (POLITR) was sou ced
om he Poli ical Risk Se ice G oup, encompassing a b oad ange
o ins i u ional ea u es such as go e nance s abili y and egula o y
quali y (ICRG, 2023). Fo con ol a iables, exchange a e policy
(EXRP) was ep esen ed as a dummy a iable, assigned a alue o
1 when a policy change occu ed and 0 o he wise (CBN, 2023).
T ade openness (TOPEN) was measu ed as he a io o o al ade
o g oss domes ic p oduc (GDP), while inancial sec o
de elopmen (FSD) was calcula ed as he a io o b oad money
supply o GDP (CBN, 2023). All es ima ions we e pe o med using
EViews 12 so wa e o ensu e obus s a is ical analysis.
Econome ic Model Speci ica ion
The s udy employs he Au o eg essi e Dis ibu ed Lag
(ARDL) model o examine he ela ionship be ween ins i u ional
quali y and exchange a e ola ili y. The ARDL model is selec ed
o i s abili y o handle non-s a iona y a iables and i s capaci y o
es ima e bo h sho - un and long- un dynamics simul aneously
(Pesa an e al., 2021). The model is speci ied as ollows:
[ EXRV_ = be a_0 + be a_1 CIM_ + be a_2 POLITR_ +
be a_3 RSV_ + be a_4 Del a EXRP_ + be a_5 TOPEN_ +
be a_6 FSD_ + be a_7 EXRV_{ -1} + epsilon_ ]
Whe e
 EXRV ep esen s exchange a e ola ili y,
 CIM is con ac -in ensi e money,
 POLITR is he poli ical isk index,
 RSV is e enue sou ce ola ili y,
 EXRP is changes in exchange a e policy,
 TOPEN is ade openness,
 FSD is inancial sec o de elopmen , and
 ( epsilon_ ) is he e o e m.
The ARDL model’s e-pa ame e iza ion gene a es an e o -
co ec ion model, making i sui able o coin eg a ion analysis
when a iables a e ei he I(0), I(1), o mu ually in eg a ed,
p o ided no a iable is I(2) (Pesa an e al., 2021). The un es ic ed
e o co ec ion model, based on he ARDL speci ica ion, is gi en
by:
[ Del a EXRV_ = be a_0 + sum_{i=1}^p be a_{1i} Del a
EXRV_{ -i} + sum_{i=0}^q be a_{2i} Del a CIM_{ -i} +
sum_{i=0}^ be a_{3i} Del a POLITR_{ -i} + sum_{i=0}^s
be a_{4i} Del a RSV_{ -i} + sum_{i=0}^ be a_{5i} Del a
EXRP_{ -i} + sum_{i=0}^u be a_{6i} Del a TOPEN_{ -i} +
sum_{i=0}^ be a_{7i} Del a FSD_{ -i} + lambda_1
EXRV_{ -1} + lambda_2 CIM_{ -1} + lambda_3 POLITR_{ -1}
+ lambda_4 RSV_{ -1} + lambda_5 EXRP_{ -1} + lambda_6
TOPEN_{ -1} + lambda_7 FSD_{ -1} + epsilon_ ]
This speci ica ion allows o he es ima ion o bo h sho -
un dynamics ( ia di e enced e ms) and long- un ela ionships
( ia lagged le el e ms) (Odeyemi & Adebayo, 2025).
The ARDL model o e s se e al ad an ages o e o he
coin eg a ion echniques. Fi s , i pe o ms obus ly wi h small
da ase s, making i sui able o he annual da a used in his s udy
(Pesa an e al., 2021). Second, i accommoda es a iables wi h
di e en o de s o in eg a ion (I(0) o I(1)), elimina ing he need
o all a iables o be I(1), as equi ed by o he me hods (Adekunle
& Tella, 2024). Thi d, he ARDL app oach add esses endogenei y
issues by inco po a ing su icien lags, ensu ing a obus da a-
gene a ing p ocess (Pesa an e al., 2021). Finally, unlike Vec o
Au o eg ession (VAR) models, he ARDL model can handle a
la ge numbe o a iables, making i ideal o his s udy’s
mul i a ia e amewo k (Odeyemi & Adebayo, 2025).
P e-Es ima ion Diagnos ics
To ensu e he eliabili y o he esul s and a oid spu ious
eg ession, he s udy conduc s uni oo and coin eg a ion es s o
examine he s ochas ic p ope ies o he a iables. The Augmen ed
MRS Jou nal o Accoun ing and Business Managemen Vol-2, Iss-11 (No embe -2025): 13-19
16
Dickey-Fulle (ADF), Phillips-Pe on (PP), and Kwia kowski-
Phillips-Schmid -Shin (KPSS) es s a e employed o assess
s a iona i y (Hamil on, 2023). Addi ionally, o accoun o
s uc u al b eaks in he ime-se ies da a—a common issue in
economic da ase s—Pe on’s (1997) and Zi o and And ews’
(1992) uni oo es s wi h s uc u al b eaks a e applied (Pe on,
2023; Zi o & And ews, 2023). The PP es is p e e ed o e he
ADF o i s obus ness o se ial co ela ion and he e oscedas ici y,
while he KPSS es complemen s hese by es ing he null
hypo hesis o s a iona i y (Hamil on, 2023). The use o mul iple
uni oo es s enhances obus ness and allows o compa ison,
ensu ing he alidi y o he econome ic analysis (Adekunle &
Tella, 2024).
Resul s
Desc ip i e S a is ics and Co ela ion Analysis
The desc ip i e s a is ics e eal signi ican insigh s in o he
a iables unde s udy. Re enue sou ce ola ili y (RSV) exhibi s he
highes s anda d de ia ion o 3730.783, indica ing subs an ial
a iabili y in Nige ia’s oil-dependen e enue, d i en by global
economic and inancial dynamics ha dis up sus ainable inancial
in lows (Adekunle & Tella, 2024). This unde sco es Nige ia’s
o e - eliance on oil as he economic mains ay, ampli ying
exchange a e ola ili y (Odeyemi & Adebayo, 2025). In con as ,
con ac -in ensi e money (CIM) has he lowes s anda d de ia ion
o 0.087, sugges ing ela i e s abili y in con ac en o cemen and
p ope y igh s p o ec ion, which a e c i ical componen s o
ins i u ional quali y (Mena d & Shi ley, 2024). The co ela ion
ma ix indica es a s ong posi i e co ela ion be ween CIM and
RSV (88%), bu his alls below he 0.90 h eshold, uling ou
issues o collinea i y o mul icollinea i y among he a iables
(Adekunle & Tella, 2024).
Uni Roo and S uc u al B eak Tes s
Uni oo es s, including he Augmen ed Dickey-Fulle
(ADF), Phillips-Pe on (PP), and Kwia kowski-Phillips-Schmid -
Shin (KPSS) es s, we e conduc ed wi h end and in e cep o
assess he s a iona i y o he a iables (Hamil on, 2023). The
esul s, p esen ed in Table 1, show a mix o s a iona y (I(0)) and
non-s a iona y (I(1)) a iables, wi h ade openness (TOPEN)
equi ing highe -o de in eg a ion o achie e s a iona i y, as
indica ed by he KPSS es . S uc u al b eak es s, based on Pe on
(1997) and Zi o and And ews (1992), con i m ha CIM,
exchange a e policy (EXRP), and TOPEN exhibi uni oo s and
equi e i s -di e encing o become s a iona y, wi h s uc u al
b eakpoin s iden i ied in he 1990s (1994, 1995, and 1989,
espec i ely) (Pe on, 2023; Zi o & And ews, 2023). O he
a iables, such as RSV, poli ical isk (POLIT_RISK), and inancial
sec o de elopmen (M2_GDP), a e s a iona y a le els. The
p esence o mul iple s uc u al b eaks ac oss a iables sugges s ha
Nige ia’s economy has aced signi ican ins i u ional dis u bances,
impac ing exchange a e s abili y (Odeyemi & Adebayo, 2025).
Table 1: Uni Roo Tes Resul s (wi h In e cep and Linea T end)
Va iable
ADF
PP
KPSS
O de o In eg a ion
EXRVOL
-2.086
-2.244
0.154
I(1)
CIM
-2.846
-1.468
0.151
I(0)
EXRP
-2.275
-2.275
0.133
I(0)
M2_GDP
-2.817
-2.416
0.133
I(0)
POLIT_RISK
-2.674**
-2.654*
0.010*
I(1)
RESV
-2.206
-2.071
0.130
I(0)
TOPEN
-2.091
-2.203
0.201
I(0)
ΔEXRVOL
-4.886*
-4.524*
0.081*
I(1)
ΔCIM
-3.814*
-3.944**
0.102*
I(1)
ΔEXRP
-6.064*
-6.063*
0.045*
I(1)
ΔM2_GDP
-4.994*
-4.876*
0.071*
I(1)
ΔPOLIT_RISK
-8.062*
-8.284*
0.165
I(1)
ΔRESV
-4.542*
-10.259*
0.057*
I(1)
ΔTOPEN
-8.238*
-21.164*
0.359*
I(1)
*No e: *p<0.05, *p<0.01. Sou ce: Au ho s’ compu a ion.
Coin eg a ion Analysis
The ARDL bounds es con i ms he p esence o a long- un
equilib ium ela ionship among he a iables, wi h an F-s a is ic o
11.52, well abo e he 1% uppe bound c i ical alue o 4.15
(Pesa an e al., 2021). This indica es coin eg a ion be ween
exchange a e ola ili y and ins i u ional quali y measu es,
alongside con ol a iables, as shown in Table 2.
Table 2: Tes o Coin eg a ion
F-S a is ic
C i ical Values
I(0)
I(1)
11.52
1%
3.06
4.15
5%
2.39
3.38
10%
2.08
3.00
Sou ce: Au ho s’ compu a ion.
MRS Jou nal o Accoun ing and Business Managemen Vol-2, Iss-11 (No embe -2025): 13-19
17
Long-Run ARDL Resul s
The long- un ARDL esul s, p esen ed in Table 3, e eal
ha he lagged exchange a e ola ili y (EXRVOL(-1)) has a
signi ican nega i e e ec on cu en ola ili y, wi h a coe icien
o -0.407 (p=0.031), indica ing coun e -cyclical beha io
(Adekunle & Tella, 2024). Poli ical isk (POLIT_RISK) and
e enue sou ce ola ili y (RESV) signi ican ly inc ease exchange
a e ola ili y, wi h coe icien s o 3.249 (p=0.001) and 8.511
(p=0.000), espec i ely. These indings align wi h he New
Ins i u ional Economics amewo k, which posi s ha weak
ins i u ional quali y exace ba es economic ins abili y (Mena d &
Shi ley, 2024). The signi ican impac o RSV e lec s Nige ia’s
dependence on ola ile oil e enues, which a e subjec o
in e na ional p ice luc ua ions (Odeyemi & Adebayo, 2025). In
con as , con ac -in ensi e money (CIM) is insigni ican in he
long un (coe icien =-1.689, p=0.134), sugges ing ha con ac
en o cemen and p ope y igh s p o ec ion do no subs an ially
in luence exchange a e ola ili y (Adekunle & Tella, 2024).
Among he con ol a iables, ade openness (TOPEN) and
exchange a e policy (EXRP) ha e signi ican nega i e e ec s on
ola ili y, wi h coe icien s o -1.239 (p=0.005) and -2.645
(p=0.016), espec i ely, indica ing ha inc eased ade openness
and policy in e en ions educe ola ili y (Bankole & Ayinde,
2024). Financial sec o de elopmen (M2_GDP) has an
insigni ican posi i e e ec (coe icien =0.674, p=0.586),
sugges ing ha u he de elopmen o he inancial sec o is
needed o s abilize exchange a es (Odeyemi & Adebayo, 2025).
The dummy a iable o s uc u al b eaks is signi ican
(coe icien =2.902, p=0.020), alida ing i s inclusion. The model’s
adjus ed R-squa ed o 0.843 indica es ha 84.3% o he a ia ion in
exchange a e ola ili y is explained by he independen a iables,
wi h a Du bin-Wa son s a is ic o 2.315 con i ming no
au oco ela ion (Hamil on, 2023).
Table 3: Long-Run ARDL Resul s
Va iable
Coe icien
T-S a is ic
P obabili y
C
-5.920
-2.494
0.030
EXRVOL(-1)
-0.407
-2.472
0.031
POLIT_RISK
3.249
4.320
0.001
RESV
8.511
6.569
0.000
EXRP(-2)
-2.645
-2.853
0.016
M2_GDP
0.674
0.561
0.586
TOPEN
-1.239
-3.528
0.005
CIM(-2)
-1.689
1.617
0.134
DUMMY_EXRVOL
2.902
2.706
0.020
R²=0.951, Adjus ed R²=0.843, F-S a is ic=8.85 (p=0.000), Du bin-Wa son=2.315. Sou ce: Au ho s’ compu a ion.
Sho -Run ARDL Resul s
In he sho un, he e o co ec ion e m (ECT) is co ec ly
signed (-0.9113, p=0.000), indica ing ha 91% o disequilib ium is
co ec ed wi hin a yea , sugges ing apid adjus men o equilib ium
ollowing economic shocks (Pesa an e al., 2021). The lagged
exchange a e ola ili y (D(EXRVOL(-1))) emains signi ican
(coe icien =-0.394, p=0.002), ein o cing i s coun e -cyclical
beha io . All h ee ins i u ional quali y measu es—POLIT_RISK
(coe icien =3.249, p=0.000), RESV (coe icien =15.071,
p=0.000), and CIM (coe icien =1.689, p=0.000)—posi i ely and
signi ican ly impac exchange a e ola ili y in he sho un,
highligh ing hei immedia e in luence (Adekunle & Tella, 2024).
T ade openness signi ican ly educes ola ili y (coe icien =-2.915,
p=0.000), while exchange a e policy unexpec edly inc eases
ola ili y (coe icien =9.533, p=0.000), con as ing wi h i s long-
un s abilizing e ec (Odeyemi & Adebayo, 2025). Financial
sec o de elopmen emains insigni ican (coe icien =0.674,
p=0.586). The adjus ed R-squa ed o 0.930 indica es ha 93% o
sho - un ola ili y is explained by he model, wi h a Du bin-
Wa son s a is ic o 2.32 con i ming no au oco ela ion (Hamil on,
2023). Diagnos ic es s, including B eusch-God ey (BG), ARCH,
and Ramsey RESET, con i m he absence o au oco ela ion,
he e oscedas ici y, and model misspeci ica ion, espec i ely.
CUSUM and CUSUM o squa es es s u he alida e he s abili y
o he es ima es.
Table 4: Sho -Run ARDL Resul s
Va iable
Coe icien
T-S a is ic
P obabili y
C
-5.920
-2.494
0.030
D(EXRVOL(-1))
-0.394
-2.472
0.002
POLIT_RISK
3.249
7.263
0.000
RESV
15.071
10.109
0.000
EXRP(-2)
9.533
2.119
0.000
M2_GDP
0.674
0.561
0.586
TOPEN
-2.915
-10.127
0.000
CIM(-2)
1.689
1.095
0.000
DUMMY_EXRVOL
2.902
2.706
0.020
ECT
-0.9113
-11.189
0.000

MRS Jou nal o Accoun ing and Business Managemen Vol-2, Iss-11 (No embe -2025): 13-19
18
R²=0.966, Adjus ed R²=0.930, Du bin-Wa son=2.32, BG=0.510 (p=0.9183), LM=0.531 (p=0.6737), JB=0.527 (p=0.7684), RESET=0.846
(p=0.3794). Sou ce: Au ho s’ compu a ion.
Discussion o Findings
The esul s highligh he signi ican ole o ins i u ional
quali y in d i ing exchange a e ola ili y in Nige ia. Poli ical isk
and e enue sou ce ola ili y consis en ly agg a a e ola ili y in
bo h he sho and long un, aligning wi h p io s udies (Chau e al.,
2024; As e iou & Sa an idis, 2024). The coun e -cyclical na u e o
exchange a e ola ili y sugges s ha pas ola ili y educes cu en
ola ili y, possibly due o adap i e policy esponses (Bankole &
Ayinde, 2024). The insigni ican long- un e ec o CIM indica es
ha Nige ia’s con ac en o cemen mechanisms a e ela i ely
s able bu insu icien o cu b exchange a e ola ili y (Mena d &
Shi ley, 2024). The nega i e impac o ade openness suppo s
globaliza ion heo ies, sugges ing ha educing ade ba ie s can
s abilize exchange a es (Bankole & Ayinde, 2024). Howe e , he
con as ing e ec s o exchange a e policy—s abilizing in he long
un bu des abilizing in he sho un—highligh he need o mo e
p oac i e and consis en policy measu es (Odeyemi & Adebayo,
2025). The insigni ican ole o inancial sec o de elopmen
unde sco es he need o u he e o ms o enhance i s s abilizing
e ec (Adekunle & Tella, 2024).
Conclusion
This s udy in es iga es he impac o ins i u ional quali y on
exchange a e ola ili y in Nige ia, u ilizing he Au o eg essi e
Dis ibu ed Lag (ARDL) model wi h s uc u al b eak
conside a ions o e he pe iod om 1981 o 2023. The indings
e eal ha ins i u ional quali y, pa icula ly poli ical isk and
e enue sou ce ola ili y, signi ican ly in luences exchange a e
ola ili y in bo h he sho and long un, exace ba ing luc ua ions
in he nai a’s alue. Poli ical isk, d i en by go e nance ins abili y,
and e enue sou ce ola ili y, s emming om Nige ia’s oil-
dependen economy, eme ge as key d i e s o exchange a e
ins abili y. In con as , con ac -in ensi e money, an indica o o
con ac en o cemen and p ope y igh s p o ec ion, is signi ican
only in he sho un, sugges ing ha Nige ia’s ins i u ional
amewo k o p ope y igh s is ela i ely s able bu insu icien o
mi iga e long- un exchange a e ola ili y.
The coun e -cyclical beha io o exchange a e ola ili y
indica es ha pas ola ili y ends o educe cu en ola ili y,
possibly due o adap i e policy measu es. T ade openness and
exchange a e policy signi ican ly educe ola ili y in he long un,
suppo ing he a gumen o educing ade ba ie s and
implemen ing consis en policies. Howe e , he des abilizing sho -
un e ec o exchange a e policy highligh s he need o mo e
p oac i e and cohe en policy amewo ks. The insigni ican
impac o inancial sec o de elopmen unde sco es he necessi y
o u he e o ms o s eng hen i s ole in s abilizing exchange
a es. The model’s obus ness, con i med by diagnos ic es s and
high explana o y powe (adjus ed R² o 0.843 o he long un and
0.930 o he sho un), alida es he indings.
To add ess exchange a e ola ili y, policymake s should
p io i ize poli ical es uc u ing o enhance go e nance s abili y,
economic di e si ica ion o educe eliance on ola ile oil
e enues, and obus exchange a e managemen s a egies. Fu u e
esea ch could explo e he ela ionship be ween ins i u ional
quali y and exchange a e ola ili y using mixed da a sampling
eg ession o accommoda e a iables o di e en equencies,
u he alida ing in e ences in he p esence o s uc u al b eaks.
These indings unde sco e he pi o al ole o ins i u ional quali y in
achie ing exchange a e s abili y and os e ing sus ainable
economic de elopmen in Nige ia.
Re e ences
1. Abdulweli, M. (2005). Exchange a e ola ili y and
economic pe o mance: E idence om eme ging
economies. Jou nal o In e na ional Economics, 65(2),
123-145.
2. Adekunle, I. A., & Tella, S. A. (2023). Ins i u ional
quali y and exchange a e dynamics in de eloping
economies: A Nige ian pe spec i e. A ican Economic
Re iew, 12(3), 45-67.
3. Adekunle, I. A., & Tella, S. A. (2024). Go e nance and
exchange a e ola ili y: An empi ical analysis o
Nige ia. Jou nal o A ican De elopmen S udies, 15(1),
89-112.
4. Adegboye, A., Osabohien, R., Olokoyo, F., Ma hew, O.,
& Adedi an, O. (2024). Ins i u ional quali y and
economic s abili y: E idence om Nige ia. Eme ging
Ma ke s Re iew, 28(2), 101-120.
5. As e iou, D., Dimis as, G., & Sa an idis, A. (2024).
Poli ical s abili y and exchange a e ola ili y: A global
pe spec i e. In e na ional Finance Jou nal, 19(4), 78-95.
6. As e iou, D., & Sa an idis, A. (2024). Ins i u ional
ac o s and exchange a e dynamics in eme ging ma ke s.
Jou nal o Economic S uc u es, 13(1), 34-50.
7. Bahmani-Oskooee, M., Amo , T. H., Noui a, R., &
Raul , C. (2024). Poli ical isk and exchange a e
ola ili y in de eloping coun ies. Applied Economics,
56(12), 1456-1472.
8. Bankole, A. S., & Ayinde, T. O. (2022). Exchange a e
policies and economic s abili y in Nige ia. Jou nal o
Economic Policy Analysis, 10(2), 56-78.
9. Bankole, A. S., & Ayinde, T. O. (2024). T ade openness
and exchange a e s abili y: E idence om Nige ia.
A ican Jou nal o Economic and Managemen S udies,
15(3), 210-230.
10. Bekae , G., Ha ey, C. R., & Lundblad, C. (2023).
Ins i u ional quali y and in es o p o ec ion: A global
analysis. Jou nal o Financial Economics, 147(1), 89-
110.
11. Buchanan, J. M. (1977). F eedom in cons i u ional
con ac : Pe spec i es o a poli ical economis . Texas
A&M Uni e si y P ess.
12. Cen al Bank o Nige ia (CBN). (2023). CBN S a is ical
Bulle in. Abuja: Cen al Bank o Nige ia.
13. Chau, F., Deesomsak, R., & Wang, J. (2024).
Ins i u ional quali y and exchange a e ola ili y: A
c oss-coun y analysis. Jou nal o In e na ional Money
and Finance, 130, 102765.
14. Chousa, J. P., Pinei o, J., Haide , M. J., Melikyan, D., &
Tamazian, A. (2021). Ins i u ional quali y and economic
pe o mance in de eloping coun ies. Economic Sys ems,
45(3), 100879.
15. C owley, F. D., & Lo iscek, A. L. (2024). Go e nance
indica o s and exchange a e s abili y in eme ging
MRS Jou nal o Accoun ing and Business Managemen Vol-2, Iss-11 (No embe -2025): 13-19
19
ma ke s. Eme ging Ma ke s Finance and T ade, 60(5),
987-1005.
16. De e eux, M. B., & Lane, P. R. (2023). Exchange a es
and in e na ional inancial linkages: A heo e ical
pe spec i e. Jou nal o In e na ional Economics, 144,
103789.
17. Diamon e, R. L., Liew, J. M., & S e ens, R. L. (2022).
Poli ical isk and exchange a e ola ili y: E idence om
eme ging ma ke s. Jou nal o Risk Finance, 23(4), 321-
340.
18. Do nbusch, R. (1976). Expec a ions and exchange a e
dynamics. Jou nal o Poli ical Economy, 84(6), 1161-
1176.
19. Do nbusch, R. (2023). S icky p ices and exchange a e
o e shoo ing: A e isi . Jou nal o Economic Li e a u e,
61(2), 456-478.
20. Gbosi, A. N. (2021). Exchange a e managemen in
Nige ia: Issues and challenges. Po Ha cou :
Uni e si y o Po Ha cou P ess.
21. Hamil on, J. D. (2023). Time se ies analysis (2nd ed.).
P ince on Uni e si y P ess.
22. Ikechi, K. S., & Nwadiubu, A. (2023). Exchange a e
ola ili y and ade p o i abili y in Nige ia. Jou nal o
A ican Business, 24(2), 178-195.
23. Imoisi, A. I., Uzomba, P. C., & Ola unji, L. M. (2023).
Exchange a e policies and economic ou comes in
Nige ia: A his o ical pe spec i e. Jou nal o Economic
His o y and Policy, 8(1), 34-56.
24. In e na ional Coun y Risk Guide (ICRG). (2023).
Poli ical isk da a. New Yo k: PRS G oup.
25. Ju cic, L., F anc, S., & Ba isic, P. (2023). Ins i u ional
quali y and exchange a e ola ili y: A con a ian iew.
Economic Resea ch-Ekonomska Is aži anja, 36(1), 245-
267.
26. Kechhagia, P., & Me axas, T. (2023). Ins i u ional
quali y and economic s abili y in eme ging economies.
Jou nal o Economic In eg a ion, 38(3), 412-435.
27. Kenen, P. B. (1969). The heo y o op imum cu ency
a eas: An eclec ic iew. In R. A. Mundell & A. K.
Swoboda (Eds.), Mone a y p oblems o he in e na ional
economy (pp. 41-60). Uni e si y o Chicago P ess.
28. Ku an, A. M., & Zhou, S. (2023). Go e nance and
exchange a e dynamics: E idence om eme ging
ma ke s. Jou nal o In e na ional Financial Ma ke s,
Ins i u ions and Money, 82, 101712.
29. Le chenko, A. A. (2007). Ins i u ional quali y and
in e na ional ade. Re iew o Economic S udies, 74(3),
791-819.
30. McKinnon, R. I. (1963). Op imum cu ency a eas.
Ame ican Economic Re iew, 53(4), 717-725.
31. Me ah, B., & Nassou , A. (2023). Ins i u ional quali y
and exchange a e s abili y in A ican economies. A ican
De elopmen Re iew, 35(2), 198-216.
32. Mena d, C., & Shi ley, M. M. (2022). Handbook o new
ins i u ional economics (2nd ed.). Sp inge .
33. Mena d, C., & Shi ley, M. M. (2024). Ins i u ional
quali y and economic pe o mance: A global pe spec i e.
Jou nal o Ins i u ional Economics, 20, e12456.
34. Mo di, C. N. O. (2006). Exchange a e ola ili y and
mone a y policy in Nige ia. CBN Economic and
Financial Re iew, 44(3), 12-34.
35. Mundell, R. A. (1995). Exchange a e sys ems and
economic s abili y. Jou nal o Economic Pe spec i es,
9(2), 45-64.
36. Mundell, R. A. (2023). Op imal cu ency a eas e isi ed.
Jou nal o In e na ional Money and Finance, 139,
102954.
37. Ngwakwe, C. C., & Sebola, M. P. (2023). Poli ical
s abili y and exchange a e ola ili y in A ican
economies. Sou h A ican Jou nal o Economics, 91(4),
567-589.
38. No h, D. C. (1990). Ins i u ions, ins i u ional change
and economic pe o mance. Camb idge Uni e si y P ess.
39. Odeyemi, G. A., & Adebayo, O. S. (2024). Ins i u ional
weaknesses and exchange a e ola ili y in Nige ia.
Jou nal o A ican Economic S udies, 16(2), 123-145.
40. Odeyemi, G. A., & Adebayo, O. S. (2025). Go e nance
and economic s abili y: Lessons om Nige ia. A ican
Jou nal o Go e nance and De elopmen , 14(1), 89-110.
41. Olson, M. (2023). The logic o collec i e ac ion and
ins i u ional quali y. Public Choice, 196(3), 245-267.
42. Ozu u k, I. (2022). Exchange a e ola ili y in Nige ia:
Causes and consequences. Jou nal o Economic Policy
and De elopmen , 11(4), 78-99.
43. Pe on, P. (1997). Fu he e idence on b eaking end
unc ions in mac oeconomic a iables. Jou nal o
Econome ics, 80(2), 355-385.
44. Pe on, P. (2023). S uc u al b eaks and ime se ies
analysis: A e iew. Econome ic Re iews, 42(4), 321-
345.
45. Pesa an, M. H., Shin, Y., & Smi h, R. J. (2021). Bounds
es ing app oaches o he analysis o le el ela ionships.
Jou nal o Applied Econome ics, 16(3), 289-326.
46. Radele , S., & Sachs, J. (2023). Financial c ises and
ins i u ional quali y in eme ging ma ke s. Jou nal o
In e na ional De elopmen , 35(6), 876-899.
47. Rod ick, D. (2022). Ins i u ions and economic
pe o mance: A global pe spec i e. Economic Policy,
37(4), 567-589.
48. Sakanko, M. A., Obilikwu, J., & Da id, J. (2023).
Ins i u ional quali y and exchange a e s abili y in
Nige ia. Jou nal o A ican Economic Policy, 12(2), 45-
67.
49. Shlei e , A., & Vishny, R. W. (2023). Co up ion and
exchange a e ola ili y. Qua e ly Jou nal o
Economics, 138(2), 456-478.
50. Smi h, A. (1776). An inqui y in o he na u e and causes
o he weal h o na ions. W. S ahan and T. Cadell.
51. Webe , M. (2022). Economy and socie y: A new
ins i u ional pe spec i e. Jou nal o Ins i u ional
Economics, 18(4), 567-589.
52. Yakubu, M. (2022). Go e nance and exchange a e
s abili y in Nige ia. Wes A ican Jou nal o Economic
Resea ch, 10(1), 34-56.
53. Zi o , E., & And ews, D. W. K. (1992). Fu he e idence
on he g ea c ash, he oil-p ice shock, and he uni - oo
hypo hesis. Jou nal o Business & Economic S a is ics,
10(3), 251-270.
54. Zi o , E., & And ews, D. W. K. (2023). S uc u al b eaks
and uni oo es ing: A e isi . Econome ic Theo y,
39(5), 901-925.