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An Empirical Analysis of Nigeria’s Current Account Sustainability

Author

Listed:
  • Mohammed Shuaibu

    (Mohammed Shuaibu (corresponding author) is at the Department of Economics, Ahmadu Bello University, Zaria, Kaduna State, Nigeria, email: mohammed_shuaibu@yahoo.com)

  • Mutiu Abimbola Oyinlola

    (Mutiu Abimbola Oyinlola is at the Department of Economics, University of Ibadan, Ibadan, Oyo State, Nigeria, email: mutiu_oyinlola@yahoo.com)

Abstract

This study reexamines the sustainability of the current account in Nigeria over four decades using time-series analysis on annual data from 1981 to 2013. We focus on two analytical distinctions to the inter-temporal budget constraint (IBC) hypothesis in relation to previous studies. First, we extend the standard bivariate approach to a multivariate framework that accounts for the roles of oil price variations and financial deepening, which have important implications for resource allocation. Second is the use of the Toda–Yamamoto modified Wald (MWALD)-based causality test that is also carried out to arbitrage between the results with and without a structural break. It employs both the conventional unit root test (augmented Dickey–Fuller [ADF] and Phillips–Perron [PP]) and the unit root test with a structural break (Perron, 2006; Zivot & Andrews, 1992). It also carries out the conventional residual-based cointegration test (Engle & Granger, 1987) and the residual-based cointegration test with a structural break (Gregory & Hansen, 1995). Findings suggest that there is current account sustainability in Nigeria and structural changes were not very potent during the period under consideration. This implies that the Nigerian economy complied with the IBC hypothesis, suggesting that exports could actually finance imports. JEL Classification: F30, F32

Suggested Citation

  • Mohammed Shuaibu & Mutiu Abimbola Oyinlola, 2017. "An Empirical Analysis of Nigeria’s Current Account Sustainability," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 11(1), pages 54-76, February.
    • Handle: RePEc:sae:mareco:v:11:y:2017:i:1:p:54-76
    DOI: 10.1177/0973801016676015
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    References listed on IDEAS

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    2. Özcan Karahan, 2020. "Sustainability of Current Account Deficit in Turkey," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Democritus University of Thrace (DUTH), Kavala Campus, Greece, vol. 13(2), pages 62-69, September.
    3. Ibrahim K. Sule and Mohammed Shuaibu, 2020. "Current Account Behavior, Real Exchange Rate Adjustment and Relative Output in Nigeria," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 45(3), pages 77-99, September.
    4. Olufemi G. Onatunji, 2023. "Sustainability of current account deficits in Nigeria: evidence from the asymmetric NARDL approach," SN Business & Economics, Springer, vol. 3(10), pages 1-22, October.
    5. Zuriyati Ahmad & Nor Aziela Jafre & Wan Norsyakila Wan Kamarudin, 2023. "The Impact of Macroeconomic Factors on Current Account Deficit in ASEAN Countries," Business and Economic Research, Macrothink Institute, vol. 13(4), pages 216-226, December.

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    More about this item

    Keywords

    Current Account Sustainability; Structural Breaks; Unit Root; Cointegration;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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