EXTERNAL RESERVES AND ECONOMIC GROWTH IN NIGERIA: A GARCH APPROACH

Abstract

The study empirically examines the relationship between external reserves and economic growth in Nigeria from 1981 to 2022, The time series data used for the study were sourced from the Central Bank of Nigeria and the National Bureau of Statistics. External reserves were measured using a GARCH framework both in terms of mild volatility and intense volatility. The dynamic flows in economic performance imply that a dynamic structure was devised for the analysis and the Auto regressive distribution lag (ARDL) estimation framework was adopted for the empirical analysis. In general, the study found that external reserves have more wide-spread and intense effect on overall income and capital base of the economy in Nigeria. Also, the results obtained from the study particularly show that: there is a significant and negative long run relationship between external reserves  and Real gross domestic product (GDP) per capita in Nigeria, which implies that such fluctuations are perpetuated in reduction in income per capita over a long period; external reserves fluctuation has no significant long run impact on exchange rate in Nigeria as only short run effects were observed; external reserves fluctuation has no significant long run effect on interest rate in Nigeria as only short run effects were observed.  The study recommends among others there is need to re-strategize reserve management and accumulation patterns in order to enhance sustainability over time and ensure positive economic impacts in Nigeria. This therefore calls for the need other foreign exchange management measures especially in terms of meeting the high demand for foreign currency which characterized and dictate the performance and trade balance and overall economic performance in Nigeria.