Dynamics of the Trade Balance: An empirical investigation of Nigerian J-Curve Hypothesis

The study examine the validity of J-curve Hypothesis in the Nigerian economy, the study employs Cointegration, Vector Auto regression Estimate, Granger Causality and Variance Decomposition to analyze the hypothesis. the study shows there is absence of long-run relationships among variables under consideration but the study found short run relationship between exchange rate devaluation and trade balance through Granger causality test and therefore confirming the existence of J-curve hypothesis i.e domestic currency devaluation have bi-directional effect on trade balance in the short-run but with little effect in the long-run and hence, the needs to diversified the sources of foreign exchange apart from petroleum sector, so as to benefit from the initial devaluation of the domestic currency, in term of increasing their exports earnings.