Macroeconomic Determinants of Current Account Balance in Nigeria

Abstract

With the saving-investment theory as a basis, this paper used the Statics Ordinary Least Squares to establish the magnitude of the selectedmacroeconomic variables via the classifications of the variable through domestic and external condition or economic environment. Both descriptive and econometric approaches were used to analyse the selected macroeconomic variables. The unit root test was also carried out using Augmented Dickey Fuller unit root test, which showed that some variables were I (1) and I (0).. In
addition, the ARDL estimate was carried out, since evidence from the literature revealed that the autoregressive distributed lag model (ARDL) was one of the major workhorses in dynamic single-equation regressions. The ARDL approach yielded consistent estimates of the long-run coefficients that were asymptotically normal, irrespective of whether the underlying regressors were I (1) or I (0), (Pesaran and Shin, 1995). The study revealed that both the external and domestic macroeconomic factors contributed to the current account balance in Nigeria, but the magnitude exhibited by the external economic environment on the current account balance is far larger than that of the domestic economic environment, especially the degree of trade openness (TOPEN) that had the coefficient of 58.6, followed by external debt (EXTDEBT) with the coefficient of 6.04. Next was the real exchange rate (REER) with the coefficient of 0.06 and lastly, was the fiscal balance to GDP (FMGDP), with the coefficient of 0.05. The conclusion was that the current account balance in Nigeria had been driven by trade openness, external debt, real exchange rate and fiscal balances, which was consistent with the findings in earlier studies and, therefore, implied that the government should ensure that policy that could enhance trade
liberalisation and reduction in debt servicing should be put in place.