Effect Of Macroeconomic Factors On External Reserves In Nigeria

External reserves are recognized as key ingredients for financing international trade. The fall in Nigeria's external reserves has been of great concern as this has caused panic in both the economic and political environment. This is because Nigeria greatly depends on its external reserves for import cover, exchange rate stability and for international ranking. In 2014, external reserves for Nigeria went below three months import cover, which is the International Monetary Fund, stipulated optimum reserves level. The main source of external reserves in Nigeria is crude oil exports which are susceptible to the vagaries of international oil shocks. The fall of international oil price pose great concerns forcing the Federal Government of Nigeria to review its budgeted crude oil benchmark in its 2014 and 2015 budgets respectively. Similarly, the exchange value of the Nigerian currency has experience a continuous downfall thereby discouraging traders engaged in imports and exports activities as their rate of return is threatened. The fall in the value of the Nigerian currency, which has made it a less attractive investment option, is largely attributed to low level of reserves, as there are inadequate reserves to ensure its stability. This is further linked to the excess demand of foreign currency for international transactions as this has continued to mount pressure on the Nigerian currency. Most studies on macroeconomic factors and external reserves focused on developed countries and obtained varying results. In the case of Nigeria, few studies investigated the effect of macroeconomic factors on external reserves. However, these studies did not capture the periods of falling oil prices and periods after the global financial crises. Therefore, the main objective of this study was to determine the effect of macroeconomic factors on external reserves in Nigeria. Consequently, the specific objectives include; to determine the effect of international oil prices on external reserves in Nigeria, to establish the effect of nominal exchange rate on external reserves in Nigeria, to determine the effect of real interest rate on external reserves in Nigeria. To establish the moderating effect of balance of trade on the relationship between international oil price and external reserves.To determine the moderating effect of balance of trade on the relationship between nominal exchange rate and external reserves. To establish the moderating effect of balance of trade on the relationship between real interest rate and external reserves in Nigeria. In addition, this study covered periods of rising and falling international oil prices and periods before and after the global financial crises. The study adopted the positivism doctrine. The study made use of causal research design. The research primarily relied on secondary data on the research variables ranging from 1981 to 2014 which was sourced from Central Bank of Nigeria, National Bureau of Statistics, Organization of Petroleum Exporting Countries and World Bank. The study carried out diagnostic tests before conducting the analysis. Time series regression analysis model (Autoregressive Distributed Lag approach) was employed in the study. The research findings showed that macroeconomic factors namely international oil price, nominal exchange rate and real interest rate have a significant effect on external reserves in Nigeria. The findings showed no evidence of a moderating effect of balance of trade on the relationship between international oil price and external reserves. However, there was evidence of a moderating effect of balance of trade on the relationship between nominal exchange rate and external reserves. Lastly, the findings of the study showed no evidence of a moderating effect of balance of trade on the relationship between real interest rate and external reserves. Furthermore, the study recommends that the Federal Government of Nigeria should put in place measures that will boost exports and discourage imports