Do International Trade and Institutional Quality Improve Foreign Exchange Reserves? An Econometric Diagnosis

This study investigates the effects of international trade and institutional quality on foreign exchange reserves in Nigeria. The study is focused on 1990 to 2022. Foreign exchange reserve of Nigeria is utilised as the dependent variable while international trade and institutional quality are indexed as net oil exports, net non-oil exports, real exchange rate, degree of trade openness and institutional quality index. Annual time-series data employed were sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin, National Bureau of Statistics (NBS) Reports and World Development Indicators (WDI). Autoregressive Distributed Lag (ARDL) is the main technique of data analysis applied, and the study found that net oil exports and trade openness had favourable and substantial effects on foreign reserves accumulation in Nigeria, net non-oil exports appeared insubstantial but favourable on foreign reserves in Nigeria, real exchange rate had substantial adverse effect on foreign earnings reserves while institutional quality index had favourable and insubstantial effects on the regressand. The study concluded that international trade and institutional quality are in no small measure imperative contributors to accumulating foreign reserves in Nigeria. The study recommended that government should implement policies that incentivize the non-oil sector, such as providing tax breaks, subsidies, and infrastructure support to boost production for export. Hence, strategic partnerships with global markets can further enhance Nigeria’s competitiveness in the non-oil sector, which in the long term would expectedly improve Nigeria’s external reserves.