Determinants of Current Account in Nigeria

Abstract

The study analyzed the determinants of the current account balance in Nigeria between 1981 and 2020, using three different models: oil current account balance, non-oil current account balance, and total current account balance. The dependent variables were the respective current account balances, while the explanatory variables included income, consumption, investment, budget deficit, exchange rate, financial deepening, broad money supply, unemployment rate, inflation rate, and age dependency ratio. The data was analyzed using the autoregressive distributed lag (ARDL) technique. The results indicated that budget deficit, exchange rate, and financial deepening were statistically significant in determining the oil current account position in the short run, while income, budget deficit, and exchange rate were statistically significant in the long run. For non-oil current account position, budget deficit, money supply, unemployment rate, inflation rate, and age dependency ratio were significant determinants in the short run, while budget deficit, money supply, unemployment rate, and inflation rate were significant in the long run. In the case of the total current account position, budget deficit, financial deepening, unemployment rate, and age dependency ratio were significant in the short run, while budget deficit, unemployment rate, and age dependency ratio were significant in the long run. The study suggests that policymakers in Nigeria should focus on reducing budget deficits, promoting financial deepening, and maintaining stable exchange rates to improve the current account balance, particularly in the short run.