External Reserve Management and Economic Growth in Nigeria

Abstract

The study examined External Reserve Management and Economic Growth in Nigeria. Time series data for 34 years was used. Ordinary Least Square of the econometric research method was used to analyze and estimate the model. The dependent variable in the model is Real Gross Domestic Product, while the independent variables are: External Reserve and Exchange Rate. It was revealed from the study that: There is a negative relationship between External Reserve (EXR) and Real Gross Domestic Product (RGDP) in the short run, External reserve is statistically significant in the long run, and that Nigeria’s external reserve has not been channeled to support economic growth in the past years. The study recommends that: Nigeria should move from the practice of stocking external reserve just to support foreign exchange and set a platform where the reserve can be used for infrastructural development in order to support economic growth and that in order to reduce the opportunity cost of holding Nigeria’s foreign reserves, part of the reserves should be invested for economic development in the areas of health, education, and the provision of infrastructures (such as electricity, good water, road, railroad etc).