Babcock Journal of Economics, Banking and Finance: ISSN: 2814-130X

THE EFFECT OF MACROECONOMIC STABILITY ON EXTERNAL RESERVES IN GHANA AND NIGERIA

Authors: ADELEYE ADEOLA OLUWATOSIN, AJIBOLA JOSEPH OLUSEGUN,

Pages: (21-56 )

Abstract

ABSTRACT Due to the increasing uncertainty as a result of globalisation, economies of developed and developing countries have maintained adequate level of external reserves to protect and achieve general stability in their economy. Nigeria and Ghana have witnessed the rise and fall in the level of external reserve. However, the effect of certain key macroeconomic variables on external reserves have not been ascertained, the effect of macroeconomic stability on external reserve in Ghana and Nigeria. Four macroeconomic variables were selected to represent macroeconomic stability (Exchange rate, GDP, Inflation and Unemployment) in the study. Data for the period 1980 to 2018 was source from World Development Indicator (WDI) and analysed using descriptive statistics and ordinary least squared (OLS) econometrics model. The descriptive statistics test, correlation matrix test, unit root test using the Augmented Dicker-Fuller, Autoregressive Distributed Lag, Bound test, Normality residual test, Heteroskedasticity test and Granger causality test were further used to analyse the data. This empirical analysis revealed that there is a short run relationship among variables for Ghana and Nigeria and a long run relationship among the variables for Nigeria. However, no long run relationship existed among the independent variables for Ghana. Also, exchange rate had a negative effect on external reserve but was not statistically significant at 5% level while for Nigeria, exchange rate was positive but not statistically significant at 5% level which is against the a'priori expectation. The study concluded that macroeconomic stability variables contributed to the level of external reserve in the two countries studied. The study recommended that government should encourage investors in order to improve exchange rate and thereby promote economic growth for the countries studied. Government should also adopt strategies to manage and maintain the country's external reserves in order to achieve a desired goal.

Keywords: Macroeconomic stability, External reserves, Ghana, Nigeria, Exchange rate, Gross Domestic Product (GDP), Inflation, Unemployment,

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