A RESEARCH ON THE IMPACT OF MONETARY POLICY ON FOREIGN TRADE IN NIGERIA
1.1 BACKGROUND TO THE STUDY
Monetary policy is one of the macro-economic instruments with which nations (including Nigeria) do
manage the economics. It entails those actions initiated by the monetary authorities which aim at influencing the
cost and availability of credits (Wrightsman 1996). It covers gamut of measures or combination of packages
intended to influence or regulate the volumes price as well as direction of money in the economy. Specifically, it
permeates all the deliberate effort by the monetary authorities to control the money supply and credits conditions
for the purpose of achieving deserve macroeconomic objectives, Ajie and Nenbee (2010). Chamberlain and
Yueh (2006) adds that the supply or price of money-may exert a powerful influence over the economy.
According to Nnana (2006), generally, macroeconomic policies in developing countries are designed to stabilize
the economy, stimulate growth and reduce poverty. The primary goal of monetary policies in Nigeria has been
the maintenance of domestic price and exchange rate stability since it is critical for the attainment of sustainable
growth and external sector viability (sanusi, 2012).
Economists have long been interested in factors which cause different countries to grow at different rates and
achieve different levels of wealth. One of such factors is foreign trade. Nigeria is basically an open economy
with international transactions constituting a significant proportion of her aggregate output. To a large extent,
Nigeria’s economic development depends on the prospects of her export trade with other nations. Foreign trade
provides both foreign exchange earning and market stimulus for accelerated economic growth (Obadan, 2004).
Several countries have achieved growth an export-led strategy. Small economies in particular have very little
opportunity to achieve productivity and efficiency gains to support growth. Without tapping into large market
through external trade, Nigeria’s relatively large domestic market can support growth but alone cannot deliver
sustained growth at the rates needed to make a visible impact on poverty reduction. Hence Nigeria has continued
to rely on foreign market as well (World Bank, 2002).