Macroeconomic Forces and Balance of Payment in Nigeria: The Triple Helix of Elasticity- Absorption- Monetary Approaches

Abstract

The study examines the effect of macroeconomic forces on balance of payment. Ex post-facto research was adopted and the sample of the study covers the period of thirty-one years spanning from 1986 to 2016. A secondary source of data was used and this was obtained from Central Bank of Nigeria Statistical Bulletin. The data were analysed through Toda-Yamamoto causality test. The study reveals the mixed relationship between exchange rate, inflation rate, money supply and interest rate. The study also shows an interaction among elasticity, absorption and monetary approaches to determining the balance of payment position in Nigeria. The study concludes that government should encourage exportation and restrict importation of goods and services in the country as this will reduce dependency on foreign goods and service and improve the domestic value of naira in the country. In view of this, the study recommends that monetary policy made by Central Bank of Nigeria should not be tailored only to money supply but, also in ensuring higher output, stabilisation of inflation pressure, ensuring flexible interest rate and employment among others in the country so as to enhance the favourable balance of payment.