External Reserves and Economic Growth in Nigeria: An Empirical Investigation

Akinboyo, Lawrence O. and Omotosho, Babatunde S. and Oladunni, Sunday and Owolabi, Olamide H. (2016): External Reserves and Economic Growth in Nigeria: An Empirical Investigation. Published in: West African Financial and Economic Review (WAFER) , Vol. 14, No. 1 (June 2016): pp. 53-78.

Abstract

The paper examines the nexus between Nigeria’s foreign reserves and economic growth. Analysis of the data from 2000:Q1 - 2013:Q2, using the modified Wald statistic of Toda and Yamamoto (1995) confirms a unidirectional causality running from external reserves to economic growth. The Gregory and Hansen co-integration test also confirms the existence of a long run relationship between the variables, but with a structural break in 2009:Q4. We find that external reserves drive economic growth in Nigeria, both in the short and long term horizons. Results also show that a one per cent increase in external reserves leads to 0.15 per cent increase in economic growth. Since general macroeconomic stability has growth enhancing effects, the paper endorses the CBN routine interventions in the foreign exchange market aimed at ensuring stability of the exchange rate.

• Item Type: MPRA Paper
• Language: English
• Keywords: Exchange reserves, co-integration, structural break, economic growth, causality
• Subjects: F - International Economics > F3 - International Finance > F31 - Foreign Exchange; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence

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