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Economic and Financial Review

Keywords

Current Account Balance, Economic Growth, Open economies

Abstract

This study examined the relationship between current account balance and economic growth in Nigeria. Auto Regressive Distributed Lag (ARDL) Bounds Testing methodology was employed to investigate the relationship, using annual data spanning from 1970 – 2016. The study found a long-run relationship between the current account balance, the real gross domestic product (GDP) growth and bilateral real exchange rate in Nigeria. The positive relationship between real GDP growth and the current account balance implies that increase in real GDP growth would lead to an improvement in the current account balance. However, the study found a negative relationship between real exchange rate and current account balance. Depreciation in the exchange rate would lead to the deterioration in the current account balance. This latter result has implications for the CBN’s exchange rate management strategy. Specifically, maintaining a stable exchange rate should continue to be a priority for the CBN given the debilitating effect of a depreciating exchange rate on the current account, and by extension, economic growth.

Issue

2

Volume

57

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