Effect of Inflation on Food Imports and Exports

Despite the enormous potentials to expand its agricultural frontier, the country has been known as one of the highest importing nations in sub-Saharan African regions. Nigeria, as an emerging economy, has suffered great setbacks in business activity orchestrated by inflation rate inconsistencies. Inflation rate affects a country's food imports and exports, as documented in the literature. The study employed the impulse response function (IRF) of the vector error correction model (VECM) technique in exploring the effect of inflation on food imports and exports in Nigeria using data from 1981 to 2017. The technique was employed based on the empirical properties of the data. Besides, the study also carried out diagnostic and stability tests to ascertain the stability of the model. Data used in the study are food import, inflation, total exports. Food import and total export were obtained from the central bank of Nigeria (CBN) statistical bulletin, while inflation was sourced from world development indicator (WDI). Empirical findings from the study revealed that a long-run relationship exists between the variables. Also, the study outcome showed that inflation affects food imports positively in the country. Besides, the findings of the study also indicate that inflation affects exports negatively in the country. The diagnostic test result indicates that the model is free from serial correlation and heteroscedasticity, while the outcome of the stability test showed that the model is stable and reliable and can be used for policy decision making. The policy implication from the study is that government should monitor closely by fostering compliance and ensuring that middlemen who are fond of diverting foreign exchange meant for food imports to other commodities previously subsidies are stopped. If unchecked, it will stimulate inflation, which will adversely affect the local farmers who produce the majority of food for exports. The government should also minimize import tariffs characterized by administrative bottlenecks and other excessive taxation. Failure of which will create inflation on the imported food items. The government should continue to invest in technology to diversify and increase the production of export crops to sustain export value.