On economic growth-reserve accumulation nexus in Nigeria : a nonlinear asymmetric cointegration estimation

This paper examines the relationship between economic growth and reserve accumulation in Nigeria using quarterly data from 2011:Q3 to 2019:Q1 in a nonlinear autoregressive distributed lag (NARDL) framework which allows for the short- and long-run nonlinearities to be investigated through positive and negative partial sum decompositions of the explanatory variable. The bounds-testing analysis confirms the existence of an asymmetric (cointegrating) long-run relationship based on the NARDL error correction model (ECM). The OLS estimation provides a reliable inference notwithstanding the variables' orders of integration. The estimated long-run coefficient of a negative change in reserve accumulation was statistically significant at 1%. The asymmetric cointegration relationship shows that 1% negative shock to the reserve results in about 0.2% increase in economic growth in Nigeria. The asymmetric dynamic multiplier captures the patterns of adjustment from the initial equilibrium to a new equilibrium following economic trepidation. This suggests that the imposition of long-run symmetry where the underlying relationship is nonlinear will muddle efforts to test for the existence of a stable long-run relationship between the two variables. In all, the nonlinear analysis provides more reliable parameter estimates that suggests that the relationship anchored on the interaction between positive productivity shocks and attrition in reserve accumulation.