In this study the long-run relationship between real oil price, real effective
exchange rate and productivity differentials is examined using annual data
for Nigeria over the period 1980 to 2010. We aim to investigate whether oil
price fluctuations and productivity differentials affect the real effective
exchange rate. The empirical results suggest that whereas real oil price
exercise a significant positive effect on the real exchange rate in the long run.
Productivity differentials exercise a significant negative influence on the real
exchange rate. The study noted that, the real exchange rate appreciation of
2000-2010 was driven by oil prices. The findings of this study have important
implications for exchange rate policy and are relevant to many developing
economies where oil exports constitute a significant share of their exports