Empirical assessment of the impact of external reserves on economic growth in Nigeria

  • Received December 6, 2021;
    Accepted February 14, 2022;
    Published June 28, 2022
  • Author(s)
    Joseph Ibrahim Adama
    ORCID , Bright Ohwofasa ,
    Ademola Onabote
    ORCID
  • DOI
    http://dx.doi.org/10.21511/imfi.19(2).2022.26
  • Article Info
    Volume 19 2022, Issue #2, pp. 295-305
  • TO CITE АНОТАЦІЯ
  • Cited by
    3 articles
  • 620 Views
  • 286 Downloads

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License

In the last few decades, the continuous depreciation in the value of the naira occasioned by the dwindling external reserves affected the exchange rate resulting in several macroeconomic fundamentals in Nigeria. The objective of the study is to examine the impact of external reserves on economic growth in Nigeria. The study utilizes the descriptive approach for the trend analysis, while the autoregressive distributed lag (ARDL) model was relied upon in scrutinizing the contemporaneous dynamics for the unrestricted ECM. The data that were culled from several issues of the Central Bank of Nigeria’s annual report and statement of account covered the period 1986–2020. Descriptively, the study finds that economic growth rate and external reserves witnessed fluctuations with the latter being relatively more pronounced. Accordingly, the study finds that in the long run, all the explanatory variables were key determinants of economic growth in Nigeria. Specifically, economic growth is significantly and positively responsive to changes in external reserves by 0.22%, inflation rate by 0.08%, and a one period lag of GDP of 0.21% contrary to its negative response to changes in exchange rate of 0.10% in the short run. The paper recommended that the government may consider providing conducive environment for increased productivity, thereby increasing foreign reserves. Likewise, the situation that may encourage exchange rate misalignment should be avoided. Finally, inflation rate must be controlled within a single digit.

Acknowledgment
The support from Landmark University, Omu-Aran, Kwara State, Nigeria, to publish this article is appreciated.

view full abstract hide full abstract
    • Figure 1. Dynamics of external reserves and economic growth in Nigeria
    • Figura 2. CUSUM test
    • Table 1. Structure of external reserves and economic growth in Nigeria
    • Table 2. Unit root test results
    • Table 3. ARDL model of estimation
    • Table 4. ARDL bound test for cointegration
    • Table 5. Estimated ECM
    • Conceptualization
      Joseph Ibrahim Adama, Bright Ohwofasa
    • Methodology
      Joseph Ibrahim Adama, Bright Ohwofasa
    • Supervision
      Joseph Ibrahim Adama
    • Writing – review & editing
      Joseph Ibrahim Adama, Ademola Onabote
    • Formal Analysis
      Bright Ohwofasa , Ademola Onabote
    • Investigation
      Bright Ohwofasa
    • Writing – original draft
      Bright Ohwofasa
    • Data curation
      Ademola Onabote
    • Software
      Ademola Onabote
    • Validation
      Ademola Onabote
    • Visualization
      Ademola Onabote
Related Articles

  • Impact on poverty and income inequality in Malaysia’s economic growth

    Rabiul IslamORCID Researcher ID, Ahmad Bashawir Abdul Ghani , Irwanshah Zainal Abidin , Jeya Malar Rayaiappan doi: http://dx.doi.org/10.21511/ppm.15(1).2017.05
    Problems and Perspectives in Management Volume 15, 2017         Issue #1         pp. 55-62 Views: 11918 Downloads: 5693 TO CITE АНОТАЦІЯ

    Poverty and income inequality are extreme issues that still exist in Malaysia. Any rise in poverty and income inequality definitely affect economic growth. There are many great efforts taken by the government of Malaysia to eradicate poverty and to reduce the gap of income inequality which occurs since 1970’s. The incidence of poverty and income inequality is higher in rural areas compared to urban areas. This paper is mainly to study the level of poverty and income inequality in Malaysia together with government intervention to develop Malaysia’s economic growth. The research is focused among the working people at Ipoh, Perak. In this paper, questionnaire forms are being distributed to get information regarding the issue of poverty and income inequality. It also looks into the strategies taken by the government of Malaysia to eradicate poverty and income inequality. Few recommendations are given in terms of education policy, financial aid and assistance from government and non-government organization (NGO) to upgrade the standard and quality of living among the poor and lower-income group of people.

  • Impact of inflation on economic growth: evidence from Nigeria

    Anthony Olugbenga AdaramolaORCID , Oluwabunmi Dada doi: http://dx.doi.org/10.21511/imfi.17(2).2020.01
    Investment Management and Financial Innovations Volume 17, 2020         Issue #2         pp. 1-13 Views: 9138 Downloads: 5470 TO CITE АНОТАЦІЯ

    In an attempt to examine the influence of inflation on the growth prospects of the Nigerian economy, the study employs the autoregressive distributed lag on the selected variables, i.e. real gross domestic product (GDP), inflation rate, interest rate, exchange rate, degree of economy`s openness, money supply, and government consumption expenditures for the period 1980–2018. The study findings indicate that inflation and real exchange rate exert a significant negative impact on economic growth, while interest rate and money supply indicate a positive and significant impact on economic growth. Other variables in the model depict no influence on the economic growth of Nigeria. The causality result shows the unidirectional relationships between interest rate, exchange rate, government consumption expenditures and gross domestic product. However, inflation and the degree of openness show no causal relationship with gross domestic product. As a result, the study recommends that a more pragmatic effort is needed by the monetary authorities to target the inflation vigorously to prevent its adverse effect by ensuring a tolerable rate that would stimulate the economic growth of Nigeria.

  • Formalization of the impact of imbalances in the movement of financial resources on economic growth of countries in Central and Eastern Europe

    Serhiy KozmenkoORCID , Maxim KorneyevORCID Researcher ID doi: http://dx.doi.org/10.21511/afc.01(1).2017.06
    Accounting and Financial Control Volume 1, 2017         Issue #1         pp. 48-58 Views: 7875 Downloads: 1375 TO CITE

    The article deals with the impact of financialization on economic growth in countries of Central and Eastern Europe. It determinesthe impact of imbalances in the movement of financial resources caused by financialization on economic growth of these countries. It proves that the implementation of measures aimed at increasing the openness of the economy and maintaining solvent demand have a positive impact on economic growth of the surveyed countries in the long run. It also proves the importance of developing a set of measures of strategic nature regulating imbalances in the movement of financial resources caused by financialization.

Download Preview
Close
Investment Management and Financial Innovations
Investment Management and Financial Innovations