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Economic Implications of Foreign Reserves Management on the Performance of the Nigerian Economy, 1995-2013

Anthonia U. Ubom, Joseph Michael Essien and Uduak B. Ubom
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Anthonia U. Ubom: University of Uyo, Nigeria
Joseph Michael Essien: Ken Saro Wiwa Polytechnic, Nigeria
Uduak B. Ubom: University of Uyo, Nigeria

Expert Journal of Finance, 2017, vol. 5, 31-40

Abstract: The focus of this study has been on the economic implications of foreign reserves management on the performance of the Nigerian economy. Despite declaration of huge external reserves, the reserves had depleted drastically and economic indicators have not significantly improved, as they have always been highly fluctuating with marginal growth levels. This study aimed to establish relationships among economic performance indicators (capacity utilization rate, manufacturing output, growth rate of gross domestic product) and foreign reserves management variables (foreign reserves position, exchange rate, imports, exports). Relevant studies have been reviewed and the methodology implied desk and empirical research. The ordinary least square multiple regression model was used to analyze the data and it helped discover inverse relationships that exist among exchange rate, imports, exports and capacity utilization rate in Nigeria. The analysis found that exchange rate exerts significant impact on manufacturing output in Nigeria, and that there is an inverse relationship among manufacturing output, foreign reserve position, imports and exports. Moreover, positive relationships exist between foreign reserve position and both capacity utilization rate and growth rate of gross domestic product. Discoveries showed that if greater parts of Nigeria’s foreign reserves were channeled to the productive sectors of its economy, capacities of productive machines would be fully utilized, domestic industries would perform well, real value of manufacturing output would increase, the domestic market would have significant positive improvements, and the growth rate of gross domestic product would be improved. On these grounds, proposed recommendations encompassed that the Nigerian government should redirect foreign exchange earnings and reserves in the productive sectors of the economy. Also, they should encourage more exports and discourage or reduce to minimum imports by reviving ailing domestic industries. The exchange rate should be properly controlled and managed by monetary authorities to aid local producers in acquiring productive facilities at cheaper rates and enhance domestic production.

Keywords: Economic Implications; Foreign Reserves; Foreign Reserves Management; Nigerian Economy; Gross Domestic Product; Capacity Utilization Rate; Manufacturing Output (search for similar items in EconPapers)
JEL-codes: F30 O24 O55 E02 (search for similar items in EconPapers)
Date: 2017
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