Nexus between Exchange Rate and Foreign Reserves on Economic Growth in Nigeria (1980-2020)

Abstract

Numerous research in Nigeria on the interaction effect between the exchange rate and foreign reserves have been marginalized; this has therefore informed this study to investigate the nexus between exchange rate and foreign reserves, with focus on the Nigerian economy. External reserve was used as the dependent variable, exchange rate, inflation, non-oil export, oil export, and real interest rate, were used as the independent variables. Time series data spanning 1980 to 2020 was used. The study employed the Bound Auto Regressive Distributed Lag (ARDL) co-integrating test approach for evaluation. The results showed that exchange rate have a positive and significant impact on foreign reserves. The granger causality test revealed a unidirectional causality running from exchange rate to foreign reserves. This study recommends that the government should diversify the economy to increase the productivity of other sectors of the economy; this would by implication boost the export of the country thereby leading to accumulation of huge foreign reserves.