External Reserves and Selected Key Macroeconomic Variables in Nigeria: An Empirical Analysis (2000-2018)

Olorunsola E. Olowofeso, Isaiah O. Ajibola, Rabia A. Muhammad, Suleiman Karu, Offiong E. Orenowo


The paper determines empirically the interactive influence of external reserves and selected key macroeconomic variables in Nigeria using an autoregressive distributive lag (ARDL) model, cointegration and error correction model anticipated by Pesaran, Shin and Smith (2001) with quarterly data between 2000 and 2018 sourced from Central Bank statistics portal on data warehouse pro platform at https://cbnstatistics.datawarehousepro.com. The paper applied the Augmented Dickey-Fuller (ADF) unit root in testing variables stationarity. The Cumulative sum (CUSUM) as well as the Cumulative sum of square (CUSUMSQ) display some recursive outstanding schemes of the external reserve function that remain within the 5% critical positions, and therefore gave an indication of steady external reserve purpose for Nigeria during the study period. The key variables trade openness that captured the total imports and exports by way of proportion of gross domestic product (GDP), exchange rate, direct investment, portfolio investment, oil price, consumer price index, interest rates have correct signs and the ARDL regression analysis indicates that the descriptive variables elucidate and accounted for 99% disparities in external reserves model. The bounds cointegration test exhibited that the variables are cointegrated. The paper demonstrated several empirical supports for the theoretical implications. Precisely, the log of direct investment, portfolio investment, trade openness and interest rate have positive effect, statistically significant and contributes to the external reserves position in Nigeria on the short- run.

Jel. Classification Numbers: F21, F32, F34

DOI: 10.7176/JESD/11-10-08

Publication date:May 31st 2020

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ISSN (Paper)2222-1700 ISSN (Online)2222-2855

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