International Oil Price and Foreign Reserve Accumulation in Nigeria
Abstract
This paper empirically appraised the response of Nigerian external reserves to movements in international oil price. Annual data on external reserves as percentage of domestic gross product, oil price of Brent crude, trade openness as well as official exchange rate from 1980 to 2020 were obtained secondarily from the Financial Statistics of the International Monetary Fund (IMF), World Bank’s Development Indicators (WDI) and Statistical Bulletin of the Central Bank of Nigeria (CBN). Applying the process Autoregressive Distributed Lag (ARDL), the relevant data were estimated. Following level and first difference orders of stationarity, the bound test revealed cointegrating affiliation between external reserves of Nigeria and the variables of causation. Thus, apparent from the analyzed long-run results are that; Brent crude oil prices and trade openness negatively and insignificantly impacted on external reserves, and the Naira appreciation against the Dollar significantly grew the external reserves. It was also revealed that in the short run, external reserves increased with rising Brent crude oil prices though insignificantly, trade openness had negative and insignificant effect and the Naira to Dollar exchange rate depreciation enhanced the country’s external reserves. Therefore, it is recommended among others that the Government of Nigeria should intensify efforts at increasing crude oil production in order to take advantage of the rising crude oil price to increase her external reserves.
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References
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