Determinants of Foreign Reserve in Nigeria

Abstract

This study analyzed the determinants of foreign reserve in Nigeria for the period 1970-2013. Data were sourced from the Central Bank of Nigeria Statistical Bulletin while Ordinary Least Square technique was employed for the analysis. The result revealed that oil price and domestic credit are the major determinants of foreign reserve. Other variables such as domestic income, price level, interest rate and exchange rate can also be considered as determinants of foreign reserve but only in the long run. Furthermore, the granger causality test revealed a unidirectional relationship between oil price and foreign reserve. Among others we recommend that Nigerian government should encourage other sources of foreign reserve apart from oil to minimize the effect of oil price volatility on the foreign reserve as well as the economy.

Keywords: foreign reserve, oil price, domestic credit, Nigeria