Macroeconomic Determinants of Economic Growth in Nigeria: An Econometric Analysis of Exchange Rate, External Reserves, and Oil Prices

Abstract

This study discusses how External Reserves and Exchange Rates can increase the Resilience of the Economy in Nigeria, which is a resource-driven economy that is very vulnerable to external shocks. The study tests the relationships between Gross Domestic Product (GDP), external reserves, exchange rates, and oil prices using annual time series data in 1986-2024, and employs Augmented Dickey-Fuller (ADF) unit-root tests, Johansen cointegration analysis, Ordinary Least Squares (OLS) and an Error Correction Model (ECM) to analyse the variables. The findings show that the long-run relationship between the external reserves and GDP is positive and statistically significant and the relationship between the exchange rates and GDP is positive and statistically significant whereas the impact of oil prices on the output is negative and statistically insignificant. The adverse and substantial error-correction variable verifies long-run convergence, which implies that reserve accumulation and exchange-rate management are effective in shock absorption to macroeconomic shocks. Nevertheless, the excessive reliance of Nigeria on oil revenues limits the sufficiency of reserves and undermines the economic stability. The research findings indicate that to improve resilience, a wise management of reserve, a lower exchange-rate volatility, and export diversification are necessary. Policy suggestions include the need to bolster local manufacturing, encourage non-oil exports, and decrease reliance on imports as a strategy of stabilising the external balance and enabling sustainable development.