Reserve Management and Economic Growth in Nigeria

Abstract

The study examined the impact of external reserves on the economic growth in Nigeria using secondary data from 1980 to 2018. The stationary test indicates the data in the study to be stationary at 1(0) and 1(1). The cointegration test indicates a long run relationship among the variables. The autoregressive distributed lagged model (ARDL) bounds test was adopted for the estimation of the data. The results of the study revealed that external reserves (ERSV), exchange rated (RER) and export (XPOT) has a positive and a significant impact on economic growth (RGDP) of the Nigerian economy, while import (MPOT) has negative effect on economic growth. The study recommends that adequate sterilization policies should be put in place to reduce the negative effect of the high cost of foreign exchange reserve accumulation and the need to channel and invest the foreign exchange reserve accumulated into the real sector of the economy. Since excessive import is inimical to the economic health of the Nigeria economy, the government should encourage domestic production through policies such as a reduction in tax, etc. in order to promote domestic production for goods that close substitutes for that of the ones being imported.