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Economic Implication of Foreign Reserves Management on the Performance of the Nigerian Economy, 1995 to 2013

Author

Listed:
  • Anthonia U. UBOM

    (University of Uyo, Nigeria)

  • Joseph Michael ESSIEN

    (Ken Saro Wiwa Polytechnic, Nigeria)

  • Uduak B. UBOM

    (University of Uyo, Nigeria)

Abstract

The focus of this study has been on the economic implications of foreign reserves management on the performance of the Nigerian economy. Despite declaration of huge external reserves, the reserves had depleted drastically and economic indicators have not significantly improved, as they have always been highly fluctuating with marginal growth levels. This study aimed to establish relationships among economic performance indicators (capacity utilization rate, manufacturing output, growth rate of gross domestic product) and foreign reserves management variables (foreign reserves position, exchange rate, imports, exports). Relevant studies have been reviewed and the methodology implied desk and empirical research. The ordinary least square multiple regression model was used to analyze the data and it helped discover inverse relationships that exist among exchange rate, imports, exports and capacity utilization rate in Nigeria. The analysis found that exchange rate exerts significant impact on manufacturing output in Nigeria, and that there is an inverse relationship among manufacturing output, foreign reserve position, imports and exports. Moreover, positive relationships exist between foreign reserve position and both capacity utilization rate and growth rate of gross domestic product. Discoveries showed that if greater parts of Nigeria’s foreign reserves were channeled to the productive sectors of its economy, capacities of productive machines would be fully utilized, domestic industries would perform well, real value of manufacturing output would increase, the domestic market would have significant positive improvements, and the growth rate of gross domestic product would be improved. On these grounds, proposed recommendations encompassed that the Nigerian government should redirect foreign exchange earnings and reserves in the productive sectors of the economy. Also, they should encourage more exports and discourage or reduce to minimum imports by reviving ailing domestic industries. The exchange rate should be properly controlled and managed by monetary authorities to aid local producers in acquiring productive facilities at cheaper rates and enhance domestic production.

Suggested Citation

  • Anthonia U. UBOM & Joseph Michael ESSIEN & Uduak B. UBOM, 2017. "Economic Implication of Foreign Reserves Management on the Performance of the Nigerian Economy, 1995 to 2013," Expert Journal of Finance, Sprint Investify, vol. 5(1), pages 31-40.
  • Handle: RePEc:exp:finnce:v:5:y:2017:i:1:p:31-40
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    References listed on IDEAS

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    1. Joshua Aizenman & Nancy Marion, 2004. "International Reserve Holdings with Sovereign Risk and Costly Tax Collection," Economic Journal, Royal Economic Society, vol. 114(497), pages 569-591, July.
    2. Philip Lane & Dominic Burke, 2001. "The Empirics of Foreign Reserves," Open Economies Review, Springer, vol. 12(4), pages 423-434, October.
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    4. Léonce Ndikumana & Adam Elhiraika, 2007. "Reserves Accumulation in African Countries: Sources, Motivations, and Effects," UMASS Amherst Economics Working Papers 2007-12, University of Massachusetts Amherst, Department of Economics.
    5. Anthonia U. UBOM & Joseph Michael ESSIEN & Uduak B. UBOM, 2017. "Economic Implications of Foreign Reserves Management on the Performance of the Nigerian Economy, 1995-2013," Expert Journal of Finance, Sprint Investify, vol. 5, pages 31-40.
    6. Mendoza, Ronald U., 2004. "International reserve-holding in the developing world: self insurance in a crisis-prone era?," Emerging Markets Review, Elsevier, vol. 5(1), pages 61-82, March.
    7. Joshua Aizenman & Kenneth M. Kletzer & Brian Pinto, 2005. "Sargent-Wallace meets Krugman-Flood-Garber, or: why sovereign debt swaps do not avert macroeconomic crises," Economic Journal, Royal Economic Society, vol. 115(503), pages 343-367, April.
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    Cited by:

    1. Anthonia U. UBOM & Joseph Michael ESSIEN & Uduak B. UBOM, 2017. "Economic Implications of Foreign Reserves Management on the Performance of the Nigerian Economy, 1995-2013," Expert Journal of Finance, Sprint Investify, vol. 5, pages 31-40.

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    More about this item

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy

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