OIL EXPORTS, FOREIGN RESERVES AND ECONOMIC GROWTH IN NIGERIA: A STRUCTURAL VAR APPROACH

Abstract

This study examined the pass-through effects of oil exports to economic growth through foreign reserves in Nigeria within the framework of SVAR. The study is anchored on the Export-Led Growth Model (ELGM) and the macro-prudential theory of accumulated reserve. Annual time series data on oil exports, foreign reserves and gross Domestic Product (GDP) spanning from 1970 to 2018 were used and sourced from Central Bank of Nigeria (CBN) statistical bulletin. The study used Granger causality and Structural Vector Autoregressive (SVAR) model and established the presence of pass-through effect from oil exports to economic growth via foreign reserves. This pass-through effect was further validated by the impulse response functions and forecast error variance decomposition. Based on these findings, the study recommended among others that investment in the oil and non-oil sector should be encouraged so as to increase the accumulation of foreign reserves in the country. Also, it is recommended that the Central Bank of Nigeria should ensure that appropriate and prudential foreign reserves management policies are put in place to safe guide and conserve the reserves. This can be done, through interventions in the foreign exchange market by implementing flexible and floating exchange rate regime and liquidity management in support of the currency (Naira) in order to stabilize reserves.  Furthermore, the economy should be diversified to increase the exports of non-oil products in order to increase the volume of reserves in the country and intensify the utilization of local content.