European Journal of Business and Management www.iiste.org ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online) Vol 4, No.21, 2012 210 Trends in Nigeria’s Balance of Payments: an Empirical Analysis from 1970-2010 IMOISI, ANTHONY ILEGBINOSA College of Social Sciences/Management Sciences, McPherson University, Km 96, Lagos Ibadan Express Way, Seriki Sotayo, Ogun State, Nigeria. E-mail-mcanthonyby@yahoo.co.uk Abstract The paper examines the trends in Nigeria’s Balance of Payments position from 1970-2010 using an econometric analysis. It is apparent that the Balance of Payments position in the country has reached an unviable proportion and has become a binding constraint in the realization of government objectives. The Balance of Payments position have been undermined by a relatively poor non oil export, high import bill, stagnated agriculture, high taste for foreign goods and services, continuous fall in the country’s foreign exchange, inflationary pressure, inefficient manufacturing sector and mishandling of the oil boom. We carried out a multiple regression analysis using the ordinary least square method for both linear and log linear form. The log-linear form gave a better result and thus was adopted to ascertain the impact of these independent variables (Exchange rate, inflation rate and interest rate) on the dependent variable (Balance of Payments). The result shows that the independent variables appeared with the correct sign and thus, conforms to economic theory, but the relationship between Balance of Payments and inflation rate was not significant. However, the relationship between Balance of Payments, Exchange rate and interest rate was significant. Thus, among other recommendations, the government is advised to increase the non oil exports and diversify the productive base of the Nigerian economy so as to correct the deficits in the current account of the country’s balance of payments. Keywords: Balance of Payments, Exchange Rate, Interest Rate, Inflation Rate, Foreign Exchange, Non-oil Exports. 1.0 INTRODUCTION The role Balance of Payments position play in the economy of any nation cannot be over emphasized and Nigeria is no exception. Balance of Payments is a systematic statistical record that summarizes a country international transaction with the rest of the world for a given period of time say one year. At 1964; fifty years after amalgamation of Nigeria in 1914, Nigeria was at the height of her promise: among other promising trends, it was the world’s largest producer of groundnuts, palm oil, and petroleum was making its debut in the national accounts. In the early 1980s, the oil market weakened, substantial external and fiscal imbalances emerged. These were financed by public sector borrowing, depleting international reserves and large accumulation on payment arrears on external trade credits and as such created problems in our Balance of payments. In 1984, austerity measures were introduced to redress the nagging deficits in the country’s balance of payments, these included; slashing of budgetary expenditures, administrative control for import licenses, increase and upward review of tariffs. In 1986, the Structural Adjustment Programme (SAP) was introduced, which amongst other things, combined exchange rates and trade policy reforms to promote economic efficiency and long term growth in the stabilization polices designed to restore balance of payments equilibrium and price stability. The cardinal aim of every government in Nigeria from the regime of Tafawa Balewa up till date is to get the balance of payments position right. This cardinal aim has inspired every major turn of policy; setting of bank rates, changes in taxes, regulation of incomes, the restructuring of industry, introduction of export rebates, control of money supply, level of local government expenditure, etc. The Current Account Deficit (CAD) in the balance of payments has been a problem for Nigeria because it adds to the already large indebtedness of Nigeria to the rest of the world. International credit is like a drug to us. We accept it indeed grave it even though we know the harm it does to us. If the credit supply that funds our current account deficits and add to our national debts dries up, we would go cold turkey. The balance of payments problem has reached an unviable proportion and has become a binding constraint in the realization of the government objectives. It have been undermined by a relatively poor non-oil export performance, high import bill, stagnated agriculture, high taste for foreign goods and services, continuous fall in the country’s foreign exchange, inflationary pressure, inefficient manufacturing sector and mishandling of the oil boom.