Determinants of International Reserves in Nigeria

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International Journal of Research and Innovation in Social Science (IJRISS) | Volume VI, Issue V, May 2022 | ISSN 2454–6186

Determinants of International Reserves in Nigeria

Scholastica A. Abuh-Amasi1, Nsikak J. Joshua2, Margaret O. Onoyom1
1University of Calabar, PMB 1115, Calabar, Nigeria
2Central Bank of Nigeria (CBN), Calabar, Nigeria
1University of Calabar, PMB 1115, Calabar, Nigeria
Corresponding Author

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Abstract: Over the past decades, nations have accumulated international reserves to leverage foreign counterparts or protect themselves against external shocks resulting from integration. The factors identified by researchers as contributing to international reserve accumulation, however, have primarily been market factors. This study sets out to identify some distinct factors of the Nigerian economy. This is accomplished using annual data from 1970 to 2016. Several econometric methods, including the unit root test and Granger causality, were applied to test two hypotheses. The results showed substantial long-run correlations between the variables examined. Thus, the Error Correction Methodology (ECM) was used to investigate short-term and long-term relationships. Findings reveal that the accumulation of foreign reserves was significantly influenced in the long run only by aggregate exports EXPT and trade openness OPN since both variables were statistically significant at 5 percent. At the specified beak-point, there was an important structural change. Finally, Nigeria’s level of international reserves was significantly impacted by the quality of its institutions. Thus, the study recommends that policymakers maintain the current exchange rate regime in order to ensure world competitiveness. The research also suggested that the government take steps to improve and build strong institutions in order to promote transparency and accountability.

Keywords: Error Correction, Institutional Quality, International Reserves, Opportunity Cost


Over the years, the global accumulation of foreign reserves has increased significantly, especially in the aftermath of the Asian financial crises of 1997/1998 and 2003/2004. Developing Asian countries in particular grew their external reserves by more than double the amount of all developed countries combined. According to statistics, developing Asian countries accounted for a larger share of the growth in global reserves between 1999 and 2002 (International Monetary Fund, 2003) due to a 37% increase in reserves held by emerging and developing economies. Similarly, statistics reveal that rising Asian countries contributed up $582 billion of the $1.2 trillion increase in world reserves between 1999 and 2003 (Gosselin & Parent, 2005).
Nigeria, Libya, Angola, Egypt, and Algeria were oil exporting countries with foreign reserves that contributed to the accumulation of foreign reserves in Africa (Ndikumana & Elhiraika, 2007). Nigeria’s significant increase in international reserves was due to the oil boom in the early 1970s. However, in the late 1970s and early 1980s, a drop in export revenues due to a drop in crude oil prices resulted in a drop in Nigeria’s