FOREIGN RESERVES ACCUMULATION AND MACROECONOMIC ENVIRONMENT: THE NIGERIAN EXPERIENCE (2004-2014)

Year 2016, Volume: 8 Issue: 1, 26 - 47, 01.06.2016

Akaninyene Udo Akpan

Abstract

This study examines the impact of Nigeria’s foreign reserves accumulation on
macroeconomic environment. Seven macroeconomic variables were selected to
represent macroeconomic environment (GDP, inflation, exchange rate and
unemployment, investment, external debt and total trade). Data were sourced from
the Central Bank of Nigeria’s Statistical Bulletin between 2004 and 2014. The
ordinary least square (OLS) econometric model was employed in the analysis of
the data. The study conducted the unit root test using both the Augmented DickerFuller
and Philip Perron with and without trend and the result showed that all
variables were stationary at first difference except inflation. The cointegration
result obtained from the analysis showed the existence of a long run relationship
between foreign reserves and the explanatory variables. The paper concludes that
foreign reserve is a necessary tool in the macroeconomic stability of the country.
It recommended that government should adopt proper and well articulated
strategies of managing the nation’s reserve in order to achieve the desired
objectives.

Keywords

Foreign Reserves, Gross Domestic Product, External Debt, Macroeconomic Environment.

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