Modelling Non – Oil Exports and Foreign Reserves in Nigeria

Abstract

This paper empirical investigates the relationship between the non-oil exports and foreign reserves in Nigeria. The estimation technique follows through the ordinary least squares (OLS), unit root tests, cointegration tests and ends with an error correction framework. The empirical results show that there exists a long run relationship between the variables under study. The results also found evidence of stability of both long run and short run foreign reserves during the investigated period. Although, a positive relationship exists between the non – oil exports and foreign reserves, this relationship is weak in Nigeria. This means that non – oil exports plays no significant part in determining the level of foreign reserves in Nigeria. However, findings show a strong positive relationship between oil exports and foreign reserves in Nigeria. This implies that oil exports remain the major determinant of foreign reserves in Nigeria, making the economy vulnerable to oil market shocks. Based on these findings, the study therefore recommends an economic revamp of the decaying non-oil sector of the economy through a committed diversification policy.

Keywords: Non-oil Exports, Oil Exports, Foreign Reserves, Economic Growth