BALANCE OF PAYMENT DEFICIT AND ECONOMIC GROWTH IN NIGERIA

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BALANCE OF PAYMENT DEFICIT AND ECONOMIC GROWTH IN NIGERIA

ABSTRACT

 

This study assessed Balance of payment deficit and Economic growth in Nigeria.  The  study adopted  unrestricted VAR model which had lag four as the maximum lag to estimate the relationship between balance of payments in Nigeria and previous balances in balance of payments account, money supply, exchange rate, real interest rate, terms of trade, openness of economy, gross capital formation and political instability .

The VAR model showed that all variables and their lags were highly significant in determining the balance of payment in Nigeria. The study found a positive relationship between current balance of payment and previous balance of payment at first, second, and third lag, differenced money supply at fourth lag,  differenced  exchange  rate,  terms of trade at second lag, differenced openness of economy at third and fourth lags, real interest rate at second and fourth lags and gross capital formation at fourth lag.

On the other hand, negative relationship was found between current balance of payments and previous balance of payment at fourth lag, a  differenced money supply  at first, second and third lags, terms of trade at first and third lags,  differenced  openness of economy at first and second lags, real interest rate at first and third lags, gross capital formation at first, second and third lags and all  lags  of  political instability.

The study recommended that the Government of Nigeria, Central Bank of Nigeria, all financial institutions and other stakeholders whose activities influence money supply, terms of trade, openness of economy, real interest rate, gross capital formation, and political instability ought to apply relevant policy measures for better management of Nigeria’s balance of payment.

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