Greener Journal of Economics and Accountancy

Open Access

Nwaeze

Greener Journal of  Economics and Accountancy Vol. 6 (2), pp. 012-025, September 2017

 ISSN: 2354-2357 © 2017 Greener Journals

Research Paper

Manuscript Number: 083117116


(DOI: http://doi.org/10.15580/GJEA.2017.2.083117116)

 

External Sector Variables and Macroeconomic Stability in Nigeria: ARDL-Error Correction Approach

 

Nwaeze, Nnamdi Chinwendu

 

Department of Economics, Abia State University, Uturu


Abstract


This study examines possible causal relationships between external sector variables and macroeconomic stability in Nigeria using the Autoregressive Distributed Lag (ARDL) approach to cointegration and error correction analysis over the period 1981 to 2016. Firstly, the causal effect of external debt stock is positive and insignificant on economic growth and negative and insignificant on inflation in the long-run and short run. The results confirm the weakness of key external sector variable in driving economic activities in Nigeria and highlights the unique case of underutilized fund from abroad. Secondly, the causal effect of exchange rate is found to be positive and significant in the long run and short run. Thirdly, the causal effect of FDI is found to be negative and insignificant on economic growth but exerts positive and significant effect on inflation suggesting the dominant role of FDI in driving macroeconomic stability in Nigeria. Finally, trade openness exerts mixed causal effect on macroeconomic stability. This study concludes that external sector variables exert mixed causal effects on macroeconomic stability in Nigeria. This conclusion is premise on the results identifying real exchange rate and FDI among the underlying factors that determine the amount of economic activities and the rate of inflation passing through the Nigerian economy. The study recommends harmonization of the multiple exchange rate windows into a single window to enhance trade openness.

 

Keywords: Trade openness, macroeconomic stability, economic growth, inflation, foreign direct investment.


Post-review Rundown

View/get involved, click [Post-Review Page]


References


Abdullahi, Z., Aliero, H. and Addullahi, M. (2013). Analysis of the Relationship between External Debt and Economic Growth in Nigeria. Interdisciplinary Review of Economics and Management, 3.

 

Ajayi, L. and Oke, M. (2012).  Effect of External Debt on Economic Growth and Development of Nigeria, International Journal of Business and Social Science, 3(12).

 

Alimi, S.R. & Muse, O.B. (2013). Export-led Growth or Growth-Driven Exports? Evidence from Nigeria. British Journal of Economics, Management & Trade 3(2), 89-100.

 

Aliyu, S. (2007). Imports-Exports Demand Functions and Balance of Payments Stability in Nigeria: A Co-integration and Error Correction Modeling, Munich Personal REPEC Archive Paper, 10396.

 

Amini, S., Qushchi, H., Ahranjani, Z. and Amini, N. (2012).  The Effect of Trade Liberalization on Balance of Payment and Economic Growth in Iran. Journal of Basic and Applied Scientific Research, 2(7), 7227-7231.

 

Bekhet, H. A. and Matar, A., 2013. Co-integration and causality analysis between stock market prices and their determinants in Jordan. Economic Modelling 35, 508–514.

 

CBN, (2007). Building and Managing External Reserves for Economic Development. The CBN Bullion.  31(2).

 

Central Bank of Nigeria (2015) Statistical Bulletin.

 

Darku, A. (2013). The Balance of Payments Constrained Growth Model and the Effect of Trade Liberalization on the Trade Balance and Economic Growth in Ghana, International Review of Applied Economics.

 

Ewubare, D.B. & Obayori, J.B. (2015). Fiscal Policy Measures and Balance of Payments in Nigeria. Scholar Journal of Economics, Business and Management, 2015; 2(9); 921-929

 

Gbosi, A.N. (2015). Contemporary Macroeconomic Problems and Stabilization Policies, 2nd Edition. Benin City: Spirit and Truth Publishers.

 

Greene, W. H (2000). Econometric Analysis. Fourth edition. New York: Prentice Hall.

 

Gujarati D.N and Porter D.W (2009). Basic econometrics: New York, McGraw-Hill/Irwin International edition.  

 

Hua, P. (2011). The Economic and Social Effects of Real Exchange Rate- Evidence from the Chinese Provinces, Paper Presented at International Conference On Social Cohesion and Development, France.

 

Ijeoma, N. B. (2013). An EmpiricalAnalysisof the ImpactofDebt on theNigerian Economy. AnInternationalJournalof ArtsandHumanities. 2(3), 165-191.

 

Imoisi, A. I. (2012). Trends in Nigeria’s Balance of Payments: an Empirical Analysis from 1970-2010; European Journal of Business and Management. (4), 21.

 

Kasidi, G. & Said, A. (2013). Impact of External Debt on Economic Growth: A Case Study of Tanzania, Advances in Management and Applied Economics, 3(4), 59-82.

 

Mordi, C. et al (2010). The Changing Structure of the Nigerian Economy, 2nd Edition, Atisele Vanessa cards Cp, Lagos, Nigeria.

 

Mukamil, S. & Rizwan, F. (2016). External Sector and Its Impact on Economic Growth in Pakistan. Journal of Applied Environmental and Biological Sciences. 6(5), 10-17.

 

Obida, G. and Nurudeen, A. (2010). The Long-Run Effects of Fiscal Deficits on Economic Growth in Nigeria, 1970-2008. The Nigerian Journal of Economic and Management Studies, 4(2).

 

Pesaran, M., Shin, Y. and Smith, R., (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16, 289–326. 

 

Thirlwall, A. P. (1979). The Balance of Payments Constraint as an Explanation of International Growth Rate Differences, Banca Nazionale del Lavoro Quarterly Review 128:45–53.

 

Udeh, S. N., Ugwu, J.I. & Onwuka, I.O. (2016). External Debt and Economic Growth: The Nigeria Experience. European Journal of Accounting Auditing and Finance Research. 4(2), 33-48.

 

Usman. M., Ashfaq, S., & Mushtaq. N., (2012). Relationship of Export and Economic growth: An Empirical study of Pakistan. Far East Journal of Psychology and Business, 6(3) 1-10.