IIARD International Institute of Academic Research and Development

IIARD INTERNATIONAL JOURNAL OF BANKING AND FINANCE RESEARCH (IJBFR )

E-ISSN 2695-1886
P-ISSN 2672-4979
VOL. 10 NO. 9 2024
DOI: 10.56201/ijbfr.v10.no9.2024.pg55.83

---

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

---

References:

Adediyan, A. (2018). Determinants of money supply in Nigeria. CBN Journal of Applied Statistics,
2(11), 181-199
Anyanwu, S. O., Offor, U. S., Adesoye, O. M. & Ibekwe, U. C. (2013). Structure and growth of
the gross domestic product (1960-2008). Implications for small-scale enterprises in

Nigeria, Global Advanced Research Journal of Management and Business Studies,

2(6),42-67.
Balino, Tomas J.T., Adam Bennett, & Eduardo Borensztein (1999). Monetary policy in dollarized
economies. IMF Occasional Paper 171, Washington D.C.: International Monetary Fund.

Beck, T., Demirguc-Kunt, A. and Levine, R. (2000). A new database on the structure and
development of the financial sector. The World Bank Economic Review, 14 (3), 597-605.

Broda, C., & Eduardo, L. Y. (2006).Endogenous deposit dollarization. Journal of Money, Credit
and Banking, 38(4), 963-88.

Burnside, Craig, Barry Eichengreen, & Sergio Rebelo (2001). Hedging and financial fragility in
fixed exchange rate regimes. European Economic Review, 45, 1151-93.

Central Bank of Nigeria (2020) . Economic and Financial Review, Lagos, CBN Publications
Central Bank of Nigeria (2012). Monetary sector modelling for Nigeria, CBN Research

Claessons, Stijn, Asli Demirguc-Kunt, & Harry Huizinga (2001). How does foreign entry affect
the domestic bank market? Journal of Banking and Finance, 25(5), 891-911

De Nicolo, Gianni, Patrick Honohan, & Alain Ize (2003). Dollarization of the Banking
System:Good or Bad? World Bank Policy Research Working Paper 3116, Washington
D.C.: World Bank.

Dodsworth, M. A., El-Erian, M. A., Hammann, D. & Yaqub, M. (1987). Foreign currency deposits
in developing countries-origins and economic implications, IMF eLibrary, 12(5), 43-65
Edwards, S. (1989). Real exchange rates, devaluation, and adjustment: Exchange rate policy
in developing countries, Cambridge, MIT Press
Fisher, Irving (1911). The purchasing power of money, New York, Macmillian Publishers

Fisher, Irving (1911). The purchasing power of money, New York, Macmillian Publishers

Friedman, M. & Schwartz, A. J. (1963). A Monetary History of the United States, 1867–1960.
Princeton, Princeton University Press.
Friedman, M. & Schwartz, A. J. (1963). A Monetary History of the United States, 1867–1960.

Friedman, M. (1962). Capitalism and Freedom, Chicago, University of Chicago Press

Gnawali, L. (2019). Money supply and economic growth of Nepal, International Journal of
Business and Management Research 3(9), 133-149.

Gujarati, D.N. (2003). Basic Econometrics, Fifth Edition, Singapore, Mcgraw- Hill,

Honohan, Patrick & Anqing Shi (2003). Deposit dollarization and the financial sector in emerging
economies,in J. Hanson, P. Honohan and G. Majnoni, eds. Globalization and National
Financial Systems, New York: Oxford University Press

Ibi, E. E., Basil, R. & Ojong, C. M. (2019). Effect of selected macroeconomic variables on money
supply in Nigeria, European Journal of Economic and Financial Research, 3(3), 61-90.

Ize, A., & Eduardo, L. Y. (2003). Financial Dollarization. Journal of International Economics,
59, 323-47.

Johansen, S. & Juselius, K. (1990). Maximum likelihood estimation and inference on
cointegration, Oxford Bulletin of Economics and Statistics, 52 (2), 169-210.

Kendall, M. C. & Stuart, A. (1961). The Advanced Theory of Statistics, New York,

Kerlinger, F. N. (1971). Foundations of Behavioural Research, Illinois, Holt Reinhart and Brace
& World Publishers


Keynes, J. M. (1936). The general theory of employment, interest, and money, New York.

Maltus, T. R., & West, E. (1815). The Application of Capital to Land, Baltimore, John Hopkins
Press

OECD (2014). National income per capita, in OECD Factbook 2014: Economic, Environmental
and Social Statistics, OECD Publishing, Paris. DOI: https://doi.org/10.1787/factbook-

Ominyi, S. O. & Inalegwu, E. O. (2017). Savings as a predictor for sustainable economic growth
in Nigeria, Nigerian Journal of Management Sciences, 6(1), 285-294

Omotor, D. G. Y., & Gbosi, A. N. (2007). The dynamics of productivity and unemployment nexus,
The Nigerian Economic Society
Onoh, J. K. (2002). Dynamics of Money, Banking and Finance in Nigeria: An Emerging Market,

Enugu, Astra Meridian Publishers Ltd
Opoku-Afari, M (2004). Real exchange rate response to capital inflows: A dynamic analysis for
Ghana, Centre for Research in Economic Development and International Trade,
University of Nottingham
Pesaran, M.H., Shin, Y. & Smith, R. J. (2001). Bounds testing approaches to the analysis of level
relationships. Journal of Applied Econometrics, 16(2), 289-326.
Pesaran, M. H. & Pesaran, B. (1997). The Role of Economic Theory in Modelling the Long Run.
Economic Journal, 107(440), 178-91.
Solow, R.M. & Swan, T.W. (1956). A contribution to the Theory of Economics and Capital

Accumulation. Quarterly Journal of Economics. Retrieved from http://links.jstor.org/sici
Ufoeze, L. O., Odimgbe, J. C., Ezeabasili, V. N. & Alajekwu, B. U. (2018). Effect of monetary
policy on economic growth in Nigeria: An empirical investigation, Annals of Spiru Haret
University Economic series, 8(1), 123-139
Uwakaeme, S. O. (2017). Inflation and economic growth in Nigeria: Determinants and Causal
relationship, Scholars’ Press, Balti, ICS Morebooks Publishers
Yeshiwas, E. T. (2021). Impact of broad money supply on economic growth of Ethiopia, Research
Journal of Finance and Accounting, 12(5), 11-19.

Zellner, A. (1979). Causality and Econometrics, Amsterdam,North Holland Publishing Inc.

DOWNLOAD PDF

---

Back