DYNAMIC EFFECTS OF REMITTANCES ON EXTERNAL RESERVES IN NIGERIA: THE ROLE OF INFLATION AND STRUCTURAL BREAKS
DOI:
https://doi.org/10.51406/jhssca.v13i1.1934Keywords:
Reserves, Remittances, Commodity Prices, Autoregressive Distribution, Inflation rateAbstract
This study provides additional information about the drivers of external reserves in Nigeria. The result using Autoregressive Distributed Lag (ARDL) model estimation approach for the period 1980-2015 shows that remittances, among other macroeconomic variables, increased external reserves in the short run but weakens it in the long run. Remittances depletes external reserves through its effect on inflation rate and the nonsterilized intervention of the Central Bank. Furthermore, regime shift to relatively floating exchange rate causes remittances to increase reserves. From the foregoing, it is important for the authorities to continue operating relatively flexible exchange rate, and curtail excessive spending of remittances.
Keywords: , , , , .
JEL Classification: F31, F24, C22, F31
References
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Charles-Anyaogu, N.B. 2012. “External reserves causality effect of macroeconomic variables in Nigeria: 1980-2009.” Kuwait Chapter of Arabian Journal of Business and Management Review Vol. 1, No. 12:14-27.
Chinaemerem, C., Ebiringa, T. 2012. “Analysis of effect of external reserves management on macroeconomic stability of Nigeria.” International Journal of Business Management, Economic Research, Vol. 3, No. 6: 646-654.
Dabla-Norris, E., Kim, I., K. Shirono. 2011. “Optimal Precautionary Reserves for low income Countries: A Cost-Benefit Analysis” IMF Working Paper WP/11/249
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Gosselin, M., Parent, N. 2005. “An empirical analysis of foreign exchange reserves in emerging Asia”. Bank of Canada Working Paper No. 38.
Greene, W.A. 2005. Econometrics Analysis, 6th edition. Upper Saddle River, New Jersey. Prentice Hall.
Halicioglu, F. 2007. “A multivariate causality analysis of export and growth for Turkey.” MPRA paper 3365, University Library of Munich, Germany.
Helpman, Elhanan. 2006. “Trade, FDI and organization of firms”. Journal of Economic Literature, American Economic Association, Vol. 44, No. 3:589-630.
Higgins, M., A. Hysenbegasi, Pozo, S. 2004. “Exchange rate uncertainty and workers' remittances.” Applied Financial Economics Vol. 14:403-411.
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Perasan, H., Shin, Y. 1999. “An autoregressive distributed lag modelling approach to conintegration analysis”. Econometrics and Economic Theory in the 20th Century: The Ragnar-Frisch Centennial Symposium, Stgrom, S. (ed). Cambridge University Press.
Perasan, H., Shin, Y., Smith, R. 2001. “Bounds testing approach to the analysis of levels relationships.” Journal of Applied Econometrics, Vol. 16:289-326.
Sezgin, S., Yildrim, J. 2002. “The demand for Turkish defence expenditure.” Defence and Peace Economies, Taylor and Francis Journals, Vol. 13, No.2:121-128.
Shijaku, G. 2012. “Optimal level of reserve holdings: an empirical investigation in the case of Albania.” Bank of Albania Working Paper No: 02 (33) 2012.
Shuaib, M., Ibrahim, M. 2013. “Demand for international reserves in Nigeria: evidence from an ARDL specification.” Empirical Economic Letters, Vol. 12, No. 6. Pp?
Stober, E O. 2016. “Crude oil, exchange rate and the convergence of foreign reserves: a VECM of Nigeria’s monetary policy tools.” International Journal of Management and economics, Vol. 5, No. 2:127-133.
Vacaflores, D., Kishan, R., Trinidad, J. 2012, “Remittances, International reserves and exchange rate regimes.” Working Paper Series, Department of Finance and Economics, Texas State University, Texa, USA.
World Bank 2016. World Development Indicators. World Bank. Washington DC.
Acosta, P., Lartey, E., F. Mandelman. 2009. “Remittances and the Dutch disease.” Journal in International Economics, Vol. 79:102-116.
Aizenman, J., Lee, J. 2005. “International reserves: Precautionary vs Mercantilist views, Theory and evidence.” IMF Working Paper No. 05/198.
Amuedo-Dorantes, C., Pozo, S. 2004. “Workers' remittances and the real exchange rate: paradox of gifts.” World Development, Vol. 32, No. 8:1407-1417.
Bankole, S., Shuaib, M. 2013. “International Reserves and crude oil price movement.” Ibadan Journal of Social Sciences, Vol. 11, No.2:70-85.
Bankole, S., Olaniyan, O., Oyeranti, O., Shuaib, M. 2011. “Demand for international reserve: a case for reserves accumulation in Nigeria.” Central Bank of Nigeria Economic and Financial Review, Vol. 49, No.3.
Bastoure, D., Carrera, J., Ibarlucia, J. 2009. “Why countries accumulate foreign reserves? A dynamic panel approach.” Review of International Economics, Vol. 17, No. 4:.861-877.
Calvo, G., Reinhart, C. 2002. “Fear of floating.” Quarterly Journal of Economics, Vol. 117:379-408.
Central Bank of Nigeria. 2015. Central Bank of Nigeria Statistical Bulletin. Central Bank of Nigeria, Abuja.
Charles-Anyaogu, N.B. 2012. “External reserves causality effect of macroeconomic variables in Nigeria: 1980-2009.” Kuwait Chapter of Arabian Journal of Business and Management Review Vol. 1, No. 12:14-27.
Chinaemerem, C., Ebiringa, T. 2012. “Analysis of effect of external reserves management on macroeconomic stability of Nigeria.” International Journal of Business Management, Economic Research, Vol. 3, No. 6: 646-654.
Dabla-Norris, E., Kim, I., K. Shirono. 2011. “Optimal Precautionary Reserves for low income Countries: A Cost-Benefit Analysis” IMF Working Paper WP/11/249
Dooley, M., Folkers-Landau, D., and P. Garber. 2004. “The revised Bretton Wood System”. International Journal of Finance and Economics, Vol. 9:307-313.
Fitch. 2016. “Remittances remain vital to forex reserves” available at www.phistar.com/business/2016/04/30/1578096/remittances-remain-vital-to-forex-reserve.
Frenkel, J., Jovanovic, B. 1981. “Optimal international reserves. A stochastic framework.” Economic Journal, Vol. 91:507-514.
Gosselin, M., Parent, N. 2005. “An empirical analysis of foreign exchange reserves in emerging Asia”. Bank of Canada Working Paper No. 38.
Greene, W.A. 2005. Econometrics Analysis, 6th edition. Upper Saddle River, New Jersey. Prentice Hall.
Halicioglu, F. 2007. “A multivariate causality analysis of export and growth for Turkey.” MPRA paper 3365, University Library of Munich, Germany.
Helpman, Elhanan. 2006. “Trade, FDI and organization of firms”. Journal of Economic Literature, American Economic Association, Vol. 44, No. 3:589-630.
Higgins, M., A. Hysenbegasi, Pozo, S. 2004. “Exchange rate uncertainty and workers' remittances.” Applied Financial Economics Vol. 14:403-411.
Imarhiagbe, S. 2016. “Examining the impact of crude oil price on external reserves: evidence from Nigeria.” International Journal of Economic and Finance, Vol. 7, No. 5:13-21.
International Monetary Fund. 2003. “Are foreign exchange reserves in Asia too high?” World Economic Outlook:78-92.
International Monetary Fund. 2005. Balance of Payments Yearbook. International Monetary Fund, Washington DC.
International Monetary Fund. 2011. Regional Economic Outlook –Western Hemisphere, Watching out for over-heating., IMF, Washington DC.
International Monetary Fund. 2013. Balance of Payments Yearbook, Washington D.C.
International Monetary Fund. 2015. Balance of Payments Yearbook. International Monetary Fund, Washington DC.
Irefin, D., B. Yaaba. 2012. “Determinants of foreign reserves in Nigeria: An Autoregressive Distributed Lag (ARDL) approach”. CBN Journal of Applied Statistics, Vol. 2, No. 2: 63-82.
Narayan, P., Narayan, S. and S. Mishra. 2011. “Do remittances induce inflation? Fresh evidence from developing countries.” Southern Economic Journal, Vol. 77, No. 4, 914-933.
Onikola, H.O. 2012. Determinants of External reserves in developing economies: the case of Nigeria. LAD-LAMBERT Academic Publishing, Nigeria.
Orozco, M. 2007. “Remittances, competition and financial access opportunities in Nigeria” USAID, USA.
Osigwe, A., Okechukwu, A., Onoja, T. 2015. “Modelling the determinants of foreign reserves in Nigeria.” Developing Country Studies, Vol. 5, No. 19:72-77.
Perasan, H., Shin, Y. 1999. “An autoregressive distributed lag modelling approach to conintegration analysis”. Econometrics and Economic Theory in the 20th Century: The Ragnar-Frisch Centennial Symposium, Stgrom, S. (ed). Cambridge University Press.
Perasan, H., Shin, Y., Smith, R. 2001. “Bounds testing approach to the analysis of levels relationships.” Journal of Applied Econometrics, Vol. 16:289-326.
Sezgin, S., Yildrim, J. 2002. “The demand for Turkish defence expenditure.” Defence and Peace Economies, Taylor and Francis Journals, Vol. 13, No.2:121-128.
Shijaku, G. 2012. “Optimal level of reserve holdings: an empirical investigation in the case of Albania.” Bank of Albania Working Paper No: 02 (33) 2012.
Shuaib, M., Ibrahim, M. 2013. “Demand for international reserves in Nigeria: evidence from an ARDL specification.” Empirical Economic Letters, Vol. 12, No. 6. Pp?
Stober, E O. 2016. “Crude oil, exchange rate and the convergence of foreign reserves: a VECM of Nigeria’s monetary policy tools.” International Journal of Management and economics, Vol. 5, No. 2:127-133.
Vacaflores, D., Kishan, R., Trinidad, J. 2012, “Remittances, International reserves and exchange rate regimes.” Working Paper Series, Department of Finance and Economics, Texas State University, Texa, USA.
World Bank 2016. World Development Indicators. World Bank. Washington DC.
