| Abstract: | A healthy current account balance has a crucial place in the macroeconomy and so does its connection to critical variables like national savings and investment, the exchange rate and competitiveness. Nigeria has run considerable current account deficits since the 1970s. As a ratio to GDP, current account deficits have also frequently exceeded the conventional benchmark of five percent. Quantitatively, current account deficits which stood at three percent of GDP in 1977 surged to 10 percent the following year and peaked at 15 percent in 1982. Although the current account was in surplus for the most part in the 1980s, sizable deficits resurfaced in 1993, reaching 9 percent in 1995 and 10 percent in 1998. This paper employs the cointegration and error correction technique together with the vector autoregression methodology to explore the factors driving current account behaviour in Nigeria. The results are a mixed bag: while variables like the square of relative income, inflation, the degree of openness and the growth rate of industrialized countries are generally negatively correlated with the current account balance, others like net foreign assets (liabilities), the budget deficit and exports show a positive association. Bibliogr., notes, sum. [Journal abstract] |
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