Study on External Reserves Management and Economic Growth in Nigeria (1985-2013)

This study examined the relationship between external reserves management and Nigeria’s economic
growth over the period 1985 to 2013. The model was specified using external reserves as the
dependent variable while gross domestic product, exchange rate, monetary policy rate, foreign direct
investment and inflation are the explanatory variables. Secondary data were sourced from Central
Bank of Nigeria and estimated using Augmented Dickey-Fuller test, Johansen co-integration test and
multiple regression. The study revealed that there is a significant long-run relationship between
external reserves and the Nigeria’s economy growth. It was further showed that explanatory variables
explained and accounted for 90% variations in the dependent variable which is evidence of a good fit
of the model. Also, the multiple regression results showed that GDP, MPR and FDI are highly
statistically significant while IFR and EXR are statistically insignificant. This implies that FDI, MPR and
GDP contributes immensely to the external reserves position in Nigeria and it is statistically significant
at 5% level which also implies that a good performance of the economy is a positive signal for the
inflow of foreign direct investment which impacts the reserves position of the economy. The study
recommended that, good policy that would create a good relationship with foreign investors should be
implemented and idle reserves should be invested domestically for production of competitive
exportable goods for more foreign currencies earning into the country.