External Reserves and Economic growth in Nigeria: An Empirical analysis

The study investigated the impact of external reserves on economic growth in Nigeria. Time series data spanning from 1981 to 2020 was sourced from the Central Bank of Nigeria statistical bulletin. The ARDL bounds testing approach to co-integration was used to analyse the data. Autoregressive Distributed Lag (ARDL) model and Error Correction Model (ECM) were utilized to address the main objectives of the study. The estimated short run coefficient result revealed that exchange rate in the current period and in two periods have a negative and significant impact on economic growth while one period lag of exchange rate has a positive and significant impact on economic growth. The coefficient of the current period of external reserves has a negative and significant impact on economic growth while inflation rate in the current period, two lag periods and three lag periods have a positive and significant impact on economic growth. The speed of adjustment for correcting disequilibrium from the previous year to equilibrium in current year is 8 percent as shown by the coefficient of ECM. The long run result showed that exchange rate has a negative and insignificant impact on economic growth while external reserves have a positive and insignificant impact on economic growth. The result also showed that inflation rate has a negative and insignificant impact on economic growth. Based on the findings, the study recommended that appropriate macroeconomic policy that should stabilize prices and boost external reserves should be formulated and implemented.