Page 549 - 2016 - Vol. 40

!" : The error term, which is assumed to be serially
uncorrelated, with zero mean and constant variance.

The model incorporated three variables namely,
Government Expenditure (G), Exports (X), and Exchange
Rate (EX) which are assumed to be positively related to
Gross Domestic Product (GDP) which increased
government Expenditure on vital sectors generates
revenues increase GDP and supports economic growth,
exchange rate is expected to have negative or positive
effect on growth domestic product, this is because an
appreciation of exchange rate would results in increase in
the prices of domestic goods, which discourage
consumption accordingly growth domestic product will
decrease.

According to economic theory depreciation in
exchange rate encourage export by lowering the foreign
price of exports, accordingly exports will increase. Then
GDP will increase.

Thus, the relationship between exchange rate,
exports and GDP are positive. Also the gap of foreign
resources can be bridge by diversification of production

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