THOUGHTS ON THE EFFECT OF DOLLAR INCREMENT ON THE ECONOMY OF NIGERIA: CLUSTER ANALYSIS

Abstract

The discussion on the exchange rate policy is not only important but necessary as well for any meaningful growth and development to take place in economy through its efficient and effective influence on macroeconomic variable. This study utilize cluster analysis technique via Euclidean distance for cluster determination through the hierarchical method to determine the number of cluster using annual data sourced from secondary sources for Nigeria from 1986 to 2016 to examine the effect of dollar increment on Nigerian economy, through the nature of relationship that exist between dependent variable (GDP) and explanatory variables (nominal exchange rate, imports and exports). It was revealed that all clusters are very far from the GDP, but closer to the nominal exchange rate, indicating that the exchange rate has a significant effect on GDP. This implies that dollar increment has a negative effect on the economy. The study recommends amongst other that foreign exchange management policies need to be concern about the policies that will influence positive accounts in the balance of payment status of the country.