WILBERFORCE JOURNAL OF THE SOCIAL SCIENCES (WJSS)
ISSN: 2504 – 9232
Volume 10, No. 1, March, 2025
Pages 97-120
DOI: 10.36108/wjss/5202.01.0170
THE TIME-VARYING DYNAMICS BETWEEN CRUDE OIL PRICES AND EXTERNAL RESERVES IN NIGERIA
DEBORAH K. ADEJOLA, AWORINDE B. OLALEKAN AND AKIN IWAYEMI
Abstract
As an oil-exporting country, Nigeria’s external reserves should benefit from favourable crude oil price increases, as reserve funds are largely derived from crude oil sales and foreign exchange inflows. In view of little attention of scholars on this observation in literature, this study analysed the time-varying dynamics between crude oil price and external reserves using wavelet analysis, which effectively captures time-varying relationships. The study analysed 1,046 monthly observations from the World Bank and Central Bank of Nigeria from 1980M1 to 2023M08. Results from the study showed dynamic time-varying influence of crude oil price on external reserves across the different domains. This study concluded that fluctuations in crude oil prices significantly led to fluctuations in external reserves. Therefore, this study recommends that government should diversify the economy from crude oil usage and implement policies that will focus on the country’s self-insurance. This will allow the nation to improve the external reserves balances which can be use in case of emergencies and national development. It will further stabilise the country’s financial system and lessen the risk associated with lack of funds.
Keywords: External reserves, covariance, crude oil price, decomposition