This paper provides empirical evidence linking exports and foreign aid to international reserve accumulation. Country-specific data spanning from 1981-2015 on oil and non-oil exports and foreign aid in Nigeria were sourced from Central Bank of Nigeria Statistical Bulletin and analyzed using error correction mechanism (ECM) in addition to unit root and cointegration tests. As observed from the Augmented Dickey-Fuller test unit root, the variables are mixed integrated. Long run relationship was established amongst the series from the Johansen cointegration test result. The parsimonious ECM that lagged values of oil exports impact positively on foreign reserve holding. 1 percent increase in lag two of oil exports leads to 0.367 percent in the external reserve. Similarly, the first lag of non-oil exports is positively linked to external reserve. With 1 percent increase in non-oil exports, international reserve increases by 0.499 percent. The error correction estimate (-0.5099) indicates that the model is well behaved as any short run disequilibrium in the system is reconciled at the speed of 50.9 percent to achieve long run equilibrium position. On the basis of the findings, it is concluded that exports are helpful in boosting the foreign reserve holding in Nigeria. Thus, this paper recommends for the diversification of the export base in order to keep the foreign reserve holding on the path of rapid and sustainable growth.
The Determinants of Foreign Reserves in Nigeria (Review Completed - Accepted)
It has been seen that Foreign exchange reserves adequacy is a key component of good macroeconomic management. The modified version of the buffer stock model was applied to assess the determinants of foreign reserve in Nigeria. The study regressed foreign reserve variable on macroeconomic variables: real income, interest rate differential (a measure of opportunity cost), exchange rate volatility, financial openness, current account vulnerability, benchmark stock of reserves, and the demand for foreign exchange. In order to avoid any spurious regression results, the time series data from 1970 -2010 was subjected to stationarity tests. The ADF cointegration procedure used suggested the existence of long run relationships. Hence, the short run dynamics was examined by means of an error correction model. The empirical evidence shows that growth in Nigeria’s foreign reserves is not influenced in the long run by current account vulnerability (proxied by trade opennes), the opportunity cost of holding reserves (DID) and the benchmark stock of reserves but by other determinants such as the real Gross Domestic Products (Y), exchange rate volatility (Ev), financial openness (Fop), and the demand for foreign exchange (DFex).