Trends in Nigeria’s Balance of Payments: an Empirical Analysis from 1970-2010

Abstract

The paper examines the trends in Nigeria’s Balance of Payments position from 1970-2010 using an econometric analysis. It is apparent that the Balance of Payments position in the country has reached an unviable proportion and has become a binding constraint in the realization of government objectives. The Balance of Payments position have been undermined by a relatively poor non oil export, high import bill, stagnated agriculture, high taste for foreign goods and services, continuous fall in the country’s foreign exchange, inflationary pressure, inefficient manufacturing sector and mishandling of the oil boom. We carried out a multiple regression analysis using the ordinary least square method for both linear and log linear form.  The log-linear form gave a better result and thus was adopted to ascertain the impact of these independent variables (Exchange rate, inflation rate and interest rate) on the dependent variable (Balance of Payments). The result shows that the independent variables appeared with the correct sign and thus, conforms to economic theory, but the relationship between Balance of Payments and inflation rate was not significant. However, the relationship between Balance of Payments, Exchange rate and interest rate was significant. Thus, among other recommendations, the government is advised to increase the non oil exports and diversify the productive base of the Nigerian economy so as to correct the deficits in the current account of the country’s balance of payments.

Keywords: Balance of Payments, Exchange Rate, Interest Rate, Inflation Rate, Foreign Exchange, Non-oil Exports.