Determinants of External Reserves in Developing Economies

This study examined the interactive influence of external reserve (ER) and some macroeconomic variables, such as economic size (GDP), exchange rate (EXR), trade position (BOP) and the country¿s major export product, crude oil production (COP). The aforementioned variables were captured as factors driving or determining the level of external reserve in the country. The econometric analysis was done, employing secondary data from the Central Bank of Nigeria (CBN) statistical bulletine. The result obtained from the co-integration test and error correction mechanism (ECM) reveals the following; (1) existence of a long run relationship between the variables and two co-integrating equations at 5% and 1% significant levels; (2) the possibility of convergence of the variables from the short to long run with slow speed of adjustment of about 44.09%. it is thus the conclusion of this paper that accumulation of large foreign reserves is not very productive in Nigeria due to her inability to induce some macroeconomic variables.