International Journal of Business and Finance Management Research
ISSN: 2053-1842
Vol. 4(3), pp. 36-46, April 2016

External reserves management and its effect on economic growth of Nigeria

Akinwunmi, Adeboye Akanni1* and Adekoya, Rosemary Bukola2

1Department of Banking and Finance, Achiever’s University, Owo, Nigeria.
2Department of Banking and Finance, Federal Polytechnic, Ado Ekiti, Nigeria.

*To whom correspondence should be addressed. E-mail:

Received 25 December, 2015; Received in revised form 31 March, 2016; Accepted 04 April, 2016.


External reserves, Economic growth, Foreign direct investment, Exchange rate.

This study examined external reserves management and its effects on Nigerian economic growth from 1985 to 2013. Secondary data were sourced from Central Bank of Nigeria statistical bulletin, Nigeria Bureau of Statistics of various editions and other related Journals. Data sourced were subjected to Durbin Watson auto-correlation test, for reliability of the data sourced and diagnostic tests such as unit root test (Augmented Dickey Fuller) and Johansen co-integration test, for the stationary and non-stationary of the data and long run relationship between the dependent and independent variables. While multiple regression were used to test for the relationship between the explainable variables and external reserves management in Nigeria. The study revealed that there is a significant relationship between external reserves and the explanatory variables. Durbin-Watson is 0.97 greater than the R2 0.90 which shows that the data are spurious. Unit root test showed that at first differential level, EXR, MPR. IFR, FDI are stationary; and co-integration test shows that p-value is lesser than the Trace and Max-Eigen statistic which is a proof of co-integration between the variables. The results from regression analysis further shows that explanatory variables explain and account for 90% variations in external reserves which is an evidence of good fit of the model. In addition, the multiple regression results show 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. It also implies that a good performance of the economy is a positive signal for inflow of foreign direct investment which impact the reserves position of the economy.

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