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Foreign Currency Deposits and Economic Growth: Estimated Evidence from Nigeria

Odimgbe Jude Chijekwu (PhD) and Ejitagha Stephen Eguonor

Abstract

This study examined the effect of foreign currency deposits on the growth of Nigeria economy using time series data from 1994-2019. Data were sourced from Central Banks of Nigeria Statistical Bulletin real gross domestic product was modeled as the function of foreign currency deposits. Ordinary Least Squares Regression was employed to reveal potential relationships between causes and effects of the independent variables on the dependent variable. The estimated model found that RGDP (-1) and LNFCD with coefficients of 0.871176, 0.042916 and p-values of 0.0005, 0.0209 respectively have significant effects on Nigeria’s real gross domestic product. This result implies that the coefficient for one-period lagged RGDP is 0.871 positive and statistically significant at 5 per cent. This indicates that a unit increase in LNRGDP and LNFCD respectively will contribute 0.871% and 0.0429% increase in current year Real Gross Domestic Product respectively. With the lagged model the only baseline explanatory variables explained about 99.88% of the changes in RGDP during the period studied. The ECM results indicate that 38.55% of the errors of the model are corrected each period (each year). From the findings, the study concludes that foreign currency deposit has significant effect on Nigeria economic growth. We recommend that government should design policies to encourage financially excluded economic agents controlling funds outside the formal financial system with the aim of contributing to economic growth and development and regulatory authorities should encourage aggressive mobilization of foreign currency deposit by financial institutions for lending to investors.

Keywords

Foreign Currency Deposits Economic Growth Nigeria

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