Empirical Test of the Sustainability of Current Account Deficits in Nigeria

Abstract

This paper examines sustainability of current account deficits in Nigeria, for the period 1980 to 2019. Using the framework of an intertemporal budget constrain, a current account sustainability equation is derived and the conditionality for establishing sustainability is ascertained. The empirical strategy applies the unit root test, the Engle Granger cointegration test and dynamic OLS (DOLS) regression approach for testing the sustainability of the current account. The study finds robust evidence showing stable long run equilibrium relationship between exports and imports. With respect to sustainability the study also shows evidence of weak sustainability especially as reported in the DOLS regression result. On the overall, the evidence from this study does not significantly deviate from extant studies in this strand of the literature.