THE IMPACT OF FOREIGN RESERVES ON ECONOMIC GROWTH OF A DEVELOPING ECONOMY

The contribution of foreign reserves to any developing country is of great significance and cannot be over-emphasized. Foreign reserves which are variously called International Reserves or External Reserve. In recent years, issues related to the management of external reserves have gained prominence, and reserves management practices have evolved rapidly. Strategizing on how to manage the nation’s foreign reserves in the most effective way for the interest of the masses in the economy should be giving strict attention and commitment to, with tight supervision by the Federal Government. By this, effective management of foreign exchange reserves is one of the major macroeconomic objectives of countries like Nigeria, where this paper intends to examine the impact of the external reserves on developing economy (A case of Nigeria between 1991-2012). The Data collected was sourced through secondary data, notably sourced from the Statistical Bulletin and Annual reports of the Central Bank of Nigeria, economic journals, textbooks, internet, covering the periods of (1991-2012) and also obtained from various sources, and was analyze by the use of Econometrics-View method through the use of Ordinary Least Square regression (OLS). The empirical result of the data analysis revealed that there is statistical significant relationship between the Nigerian external reserves and economic development. Hence, the need for an effective and efficient management of Nigeria’s external reserves is imperative and recommended that reserve management should seek to ensure that adequate reserves are available such that risks are controlled in a prudent manner and reasonable earnings are generated over the medium to long term on the funds invested. It is true to a great extent that the international standing of a currency and its convertibility depend very much on the quantity of foreign reserves maintained by the country. As an ultimate means of settlement of a country’s international transactions, foreign reserves enable the balancing of fluctuations between international payments and receipts as they occur from day to day, month to month and from year to year. The availability of reserves, under such circumstances, ensures a smooth flow of goods, and capital into and out of the country, in accordance with needs and practices of trade and commerce. The cushion provided by the reserves also allows time in which to formulate and execute judicious policies to correct imbalances in external transactions when they arise. If the reserves are to play any effective role in this regard, they should be both adequate and usable. By usable it means they must be kept in the most liquid form.

TABLE OF CONTENTS

CHAPTER ONE: INTRODUCTION

1.1 Background to the Study

1.2 Statement of the Problem

1.3 Aims and Objectives of the Study

1.4 Research Questions

1.5 Research Hypothesis

1.6 Significance of the Study

1.7 Research Methodology

1.8 Scope of the Study

1.9 Plan of the Study

1.10 Definition of Terms

CHAPTER TWO: LITERATURE REVIEW

2.1 Introduction

2.2 Theoretical Framework

2.2.1 Empirical Review

2.3 Concept of Foreign Reserves

2.4 Sources of Nigeria External Reserves Inflows

2.4.1 Rationale for Holding Reserves

2.4.2 Factors Militating Against Managing Foreign Reserves of a Developing Nation

2.4.3 Challenges of Managing External Reserves

2.5     Dwindling of Foreign Reserves and the Nation Currency

2.6       Retooling Nigeria Foreign Reserves for Efficacy

2.6.1    Rebuilding the Nation External Reserve for Future Saving

2.6.2    Sector Deployed to Use the nation External Reserves

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Introduction

3.2 Research Design

3.2.1    Data Sources and Description

3.2.2    Population of the Study

3.2.3    Data Analysis Techniques

3.3       Model Formulation and Specification

3.3.1    First Model

3.3.2 Second Model

3.4 Decision Criteria

CHAPTER FOUR: DATA ANALYSIS AND INTERPRETATION

4.1             Introduction

4.2             Presentation of Data

Table 4.2.1 Data used for Model I

Table 4.2.2 Data used for Model II

4.3               Data Analysis

Table 4.3.1 Result of the First Model

4.3.2           Interpretation of the Result

Table 4.3.3 Result of the Second Model

4.3.4 Interpretation the Result

4.4 Discussion of Findings

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary

5.2 Conclusion

5.3 Recommendations

References