MONEY SUPPLY AND BALANCE OF PAYMENT EQUILIBRIUM IN NIGERIA: AN EMPIRICAL ANALYSIS.

Abstract

The study examined empirically the impact of money supply and balance of payments equilibrium in
Nigeria: using secondary annual time series data from 1990 to 2024 on the under listed variables from the
Central Bank of Nigeria Statistical Bulletin and data from World Development Indicators (WDI). The
dependent variable was proxied by balance of payments stability (BOP) while Broad Money Supply
(M2),interest rate (INTR), inflation rate (INFL),trade openness (TOP), and foreign direct investment (FDI)
were the independent variables . The test mechanism adopted were the unit root test for co-integration and
Autoregressive Distributed Lag (ARDL) technique. Findings revealed that there is a positive and significant
relationship existing between broad money supply, interest rate, exchange rate, trade openness, and
inflation rate, in both long and short run period, suggesting that these variables contribute immensely to
balance of payments stabilization in Nigeria. However, foreign direct investment exhibited a shocking
negative and insignificant relationship with BOP in both periods, showing that foreign direct investment is
not currently structured or targeted in a way that supports external balance that will in turn improve BOP.
Therefore, for policy, the study recommended that Government should put in place targeted policy to
promote high quality FDI, strengthen domestic institutions, implement local content policies, monitor and
manage capital flows and enhance export capacity.