Abstract
This paper empirically investigated the relationships among money supply, government revenue, government expenditure, domestic debt, external debt, inflation rate, exchange rate and balance of trade in Nigeria based on time series data which spanned between 1981 and 2017. The data were sourced from Central Bank of Nigeria Statistical Bulletin publications of various issues and National Bureau of Statistics. The data were tested for stationarity using Augumented Dickey Fuller unit root test and Phillips-Perron unit root test while the co-integration test was conducted using Johansen’s methodology. Ordinary Least Square (OLS) estimating technique was used for the empirical analysis. The findings revealed that both the explanatory variables and the dependent variable have long run equilibrium relationship. The results further demonstrated that government revenue (GREV), government expenditure (GEXP), exchange rate (EXGR) and inflation rate (INFR) have statistically significant positive relationships with balance of trade (BOT) while money supply (MS), domestic debt (DDEBT) and external debt (EDEBT) exert statistically significant negative impact on balance of trade (BOT) in Nigeria. Based on the results, government at all levels should ensure implementation of monetary and fiscal policies’ instruments aimed at promoting favorable investment atmosphere through appropriate stabilization of interest rates, exchange rates and inflation rates in order to galvanize economic growth, economic stability, economic sustainability and favorable balance of trade; there should be promotion of exportation of Nigerian products by the government especially non-oil products in order to bring more foreign exchange earning into the country, boost productive activities and improve the balance of trade position of the country. In addition, government should ensure that loans borrowed from domestic and external sources are judiciously expended on productive activities in order to positively influence balance of trade; and there should be imposition of ban on importation of products that can be manufactured domestically so as to expand productive capacity of indigenous industries and ensure favorable balance of trade. Finally, different tiers of government should invest massively on critical infrastructure in the economy to boost local investment in productive activities, thus galvanizing balance of trade. Keywords: Monetary Policy, Fiscal Policy, Balance of Trade, Unit Root Test, Co-integration Test, Ordinary Least Squares, Nigeria DOI : 10.7176/JPID/50-07 Publication date :June 30 th 2019
Highlights
The governments in most advanced and developing countries usually employ fiscal policy and monetary policy instruments with the overall objective of maximizing the welfare of their citizens
On the other hand, refers to the utilization of central bank’s monetary weapons to control and regulate the availability of credit in the economy in order to achieve the objectives of price stability, increased gross domestic product growth rate, reduction in inflation rate, decline in unemployment rate, improvements in the balance of payments, accumulation of financial savings and external reserves as well as stability in Naira exchange rate and this control can be exerted through money supply, exchange rate, interest rate and inflation rate
The specific objectives are: -To examine the relationship between monetary policy variables and balance of trade dynamics in Nigeria. –To analyze the nexus between fiscal policy variables and balance of trade dynamics in Nigeria over the studied period. –To recommend policy prescriptions based on the estimated result
Summary
The governments in most advanced and developing countries usually employ fiscal policy and monetary policy instruments with the overall objective of maximizing the welfare of their citizens. On the other hand, refers to the utilization of central bank’s monetary weapons to control and regulate the availability of credit in the economy in order to achieve the objectives of price stability, increased gross domestic product growth rate, reduction in inflation rate, decline in unemployment rate, improvements in the balance of payments, accumulation of financial savings and external reserves as well as stability in Naira exchange rate and this control can be exerted through money supply, exchange rate, interest rate and inflation rate Both fiscal and monetary policies are utilized by various governments all over the world to achieve macroeconomic objectives of sustainable economic growth, achievement of full employment of resources, price stability, income redistribution and maintenance of balance of payments equilibrium. They prefer to sell more goods and earn higher income, improving the standard of living of their citizens
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