ABSTRACT

The study examined the impact of balance of payment on reserves in Nigeria using time series data from 1985 to 2019. The secondary data for the study were sourced from Central banks of Nigeria’s statistical bulletin and National Bureau of statistic of various editions. External reserves (EXTRV) is the dependent variable while current account balance (Cab), capital account balance (KAb), errors and omissions (ERO) and exchange rate (EXCR) are the independent variables. The data were subjected to Augmented Dickey Fuller and Philips-Perron test to ascertain the time series properties. Descriptive statistics was used to assess the socioeconomic characteristics of the variables. To verify the possibility of autocorrelations in the regression model. Durbin watson test was employed while ARDL approach was used to examine the likely interaction among the variables under the study in the long-run and short-run basis. The study revealed that: errors and omission had no significantly impact on external reserves, capital account balance significantly influenced external reserves while exchange rate was negative and insignificantly influencing external reserves in Nigeria within the chosen period. The coefficient of determination (R2) values of 96.6% showed high level of goodness of fit of the regression line while F-statistics value of 47.65% showed the overall significance of the regression model. In line with the findings, the study recommended that: Nigeria’s monetary authority’s efforts should be directed towards effective balance of payment management that would lead to favourable consequences on the external reserves positions in the country, domestic production should be improved to encourage export transaction in order to keep balance of payment deficit in check, government should put in place appropriate policies that would encourage diversification in the economy.