External Reserves Implication on the Economy Performance of Nigeria (1980-2023): An Empirical Evidence

Abstract

This study examined the External Reserves Implication on the Economy Performance of Nigeria (1980- 2023) using the OLS method of estimation. Descriptive statistics, trend analysis, ADF unit root were first done, and it was indicated that the variables were stationary at (I(0) and I(1)) level and first difference. The ARDL cointegration revealed that lagged one year of external reserves has significant relationship with Real Gross Domestic Product and positively related (0.0928) in short-run and (0.1066.) in the long- run. Exchange rate lagged for two years ( -0.1513) was significant, negatively related to Real Gross Domestic Product in short-run, but positively related in the long-run (1.0254). Inflation rate (0.0039) and (0.0734) has positive impact of growth of Nigeria’s economy both in short and long-run and statistically significant in the short-run. Also, Money supply (MS2) was positive related (0.0074) and (0.0959) in both short-run and long-run respectively. ARDL model reparameterised into Error Correction Model revealed the long-run equilibrium was corrected in the current period at an adjustment speed of 8%, statistically significant and negatively signed. Based on the findings, it was recommended that so far, the gross domestic product growth improves and increases the level of external reserves of an economy, thus, federal government is expected to implement anat the same time to raise the level of the nation’s external reserves. Money supply also influences and enhances increases in external reserves; therefore, monetary authorities should endeavour to keep the rate at a competitive level which will inspire economic growth through the actions of the local investors. Accumulated reserves will prevent interest and thereafter affect the movement or instability in exchange rate. Hence, optimal reserves are recommended in order to encourage more domestic investment.