Effect of Devaluation of Naira on Price Level

3724 Words Jul 10th, 2010 15 Pages
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.
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Production in Nigeria has also increased in cost. This leads to the downfall of industries. The devaluation of currency is a major plank of World Bank and IMF policies for the development of the economies of Third World countries. Nigeria's compliance with this demand was allegedly tied to further rescheduling of Nigeria's external debt and fresh aids. 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.
REVIEW OF RELEVANT LITERATURE

There is a vast body of empirical literature on the impacts of devaluation on output and prices. In many of the existing studies, it has been recognized that the possible effects of devaluation on output could be contractionary. To this extent, several channels through which devaluation could be contractionary have been identified.
First, Diaz-Alejandro (1965) examined the impacts of devaluation on some macroeconomic variables in Argentina for the period 1955–61. He observed that devaluation was contractionary for Argentina because it induces a shift in income distribution towards savers, which in turn depresses consumption and real absorption.
He equally observed that current account improved because of the fall in absorption relative to output. Cooper (1971) also reviewed twenty-four
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