A Granger Causality Test (GCT) Approach to Exchange Rate Volatility on Prices of Selected Construction Materials in North-Central Nigeria

Abstract

he importance of construction materials to Nigeria’s construction industry sub-sector cannot be overemphasized considering its monumental contribution to its output. Unfortunately, there has been a continual upward surge in the prices of construction materials and its attendant effects on the volume of construction output owing to price vagaries which now threatens the infrastructural output of this sub-sector. This study thus, applies Granger Causality Test (GCT) to investigate the effect of Exchange Rate Volatility (ERV) on selected construction material prices for construction projects within the North-Central geopolitical zone of Nigeria. The data employed Exchange Rate Volatility (ERV) trend, and Average Price Trends (APT) of Cement, Block, Tile and Reinforcement for the period between 2011Q1 and 2020Q4. The results show p-values of 1.006e-05, 1.006e-05, 0.000668 and 1.006e-05 respectively for Cement, Blocks, Tile and Reinforcement. Thus, implying that there is presence of stochastic trend amongst the variables, as ERV do not granger-cause the selected construction material prices as well as having a long run unidirectional relationships with these materials prices. This study concludes that exchange rate votality has a negative consequence on each of the selected construction materials with a unidrectional impact and same not happening in reverse with its sensitivity not having a transformative effect on these materials prices except with the combination of several macroeconomic variables. The study recommends the need for the implementation of requisite fiscal policies including reduction in the usage of other currencies other than the Naira to transact within Nigeria, stoppage of the use of US Dollars as an intermediary for international currency exchanges and an increase in the production capacity of local construction materials