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Rivers State University, Port Harcourt.
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| Title: | Financial Libralisation and Balance of Payments in Nigeria: An Econometric Analysis |
| Author(s): | NYECHE E., CHUKWU S. N. & OGUIBE T. E. |
| Abstract: | This study contributes to the international economics literature by examining how financial liberation affects the balance of payments position in Nigeria. The specific objectives are to ascertain how lending rates, deposit rates, exchange rates and financial openness index affect the balance of payments measured by the current account balance as a percentage of GDP. The datasets on the variables were obtained from the CBN Statistical Bulletin and World Bank. The techniques for the data analysis include the unit root test, cointegration test and least squares estimation method. The ADF first difference test results showed that the variables became stationary upon first differencing. This suggests that data transformation through first differencing is important for the stationary of the series. The Johansen cointegration test results showed that the balance of payments has a long run relationship with the financial liberalisation indicators. This finding provides the empirical basis for the estimation of the error correction model (ECM). The parsimonious ECM showed that lending rates contributed negatively to the balance of payments. This suggests that an increase in the cost of borrowing is detrimental to the performance of the external sector in Nigeria. Similarly, it is evident from the results that exchange rates negatively affected the balance of payments, indicating that the instability in the value of the naira is not good for the improved performance of the external sector in Nigeria. Interestingly, the results showed that deposit rates and financial openness index have positive effects on the balance of payments in Nigeria. This attests to the effectiveness of financial integration in mobilising financial resources to the Nigerian economy from various destinations to foster a favourable balance of payments in the Nigerian economy. The error correction coefficient (-0.3460) is negative and significant at the 5% level, indicating that convergence to the long-run equilibrium position is achieved at a speed of 34.60%. Given the findings, this study recommends among others that the CBN and monetary authorities should ensure that lending rates are consistent with the macroeconomic goal of a favourable balance of payments to create more opportunities for the improved performance of the external sector in Nigeria. |
| Keywords: | Lending Rates, Deposit Rates, Exchange Rates, Financial Openness Index, Balance of Payment |
| Journal: | Journal of World Economics and Financial Report Vol 1 No 1 |
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