Abstract:
The main aim of this study is the evaluation of fiscal deficits and its effects on external reserves in Nigeria over the period 1981-2012. Employing modern time series econometric techniques such as unit root test, cointegration and error correction techniques the study reveals intriguing results. The Johansen cointegration test revealed a long run relationship among the variables. The statistical significance of the one period lagged ECM supports this long run relationship and a satisfactory speed of adjustment. Results suggest that foreign exchange reserve is determined in the long-run by recurrent and capital expenditures. It is thus recommended that there should be sustainability of a fiscal deficit profile in order to stimulate growth in the nation’s economy
