Balance of Payments and Macroeconomic Performance in Nigeria

Abstract

This study examined the effect of the balance of payments on macroeconomic performance in Nigeria between 1981 and 2021. The specific objectives are to determine the effects of current account balance, capital account, and external reserves on the gross domestic product (GDP) growth rate (the proxy of macroeconomic performance). This study employed secondary data sourced from the United Nations Conference on Trade and Development (UNCTAD), the Central Bank of Nigeria (CBN), and the database associated with Chinn and Ito. The study employed the augmented Dickey-Fuller method to examine the stationarity of the series and tested for cointegration among the variables using the bound test. The relationship between the balance of payments component and the gross domestic product growth rate was analysed using the autoregressive distributed lag (ARDL) method. The study confirmed the long-run relationship between components of the balance of payments and GDP growth. The ARDL shows that in the long run, current account balances had a positive and significant impact on GDP growth. The capital account proved not to be an effective policy for driving economic growth in the long run. It was found that external reserves had a positive and significant impact on GDP growth in the long run. Based on the findings, this study recommended a blend of export promotion policy and import substitution strategy to improve the balance of payments and create more opportunities for economic growth. Again, policymakers should focus on improving the financial depth and strengthening institutions, all of which support the liberalisation of the capital account and foster economic growth.