n African Journal of Business and Economic Research - External reserve and the Nigerian economy : the dual folded debate

Volume 3, Issue 2_3
  • ISSN : 1750-4554
  • E-ISSN: 1750-4562


The external reserves-economy relationship argument has generated debate due to unsatisfactory theoretical and empirical consensus. This paper provides an economic assessment and empirical insight to the debate in Nigeria. Towards this, the paper used secondary data from CBN statistical bulletin (1994 - 2005). The outputs generated revealed that external reserves exceeding the three months benchmark equivalent was in excess: its holding cost was high. In addition, the results suggested dual fold interpretation of the analyses: 1) holding of external reserves do promote exchange rate stability, 2) positive relationship exists between external reserves and exports; however, the relationship was not significant, hence suggesting that export was not induced significantly by the nation's external reserves. The paper suggests that domestic production efficiency is required not really external reserve accumulation to improve macroeconomic performance.

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