Evaluating the Correlation between Specific Macroeconomic Performance and the Price of Crude Oil in Nigeria

Abstract

The study examines the relationship between oil price shocks and some selected Nigeria’s Macroeconomic variables by utilizing quarterly data for the period of 1980-2022 using a time frame of 46 years. The selected macroeconomic variables are Real Growth Domestic Product, Consumer Price Index and Real Exchange Rate. VECM was used as a technique for analysis, the results obtained from the estimation of the VECM model showed that there are long-run interdependences of oil price shocks that have a significant impact on Real Growth Domestic Product, Consumer Price Index and Real Exchange Rate in Nigeria. The study concluded, that the major source of revenue and foreign earnings to the economy is mainly from the sales of crude oil, as the economy is entirely dependent on the level of global oil prices, as such most of the macroeconomic indicators of the economy are directly or indirectly being affected by the oil price fluctuation in the economy, the study therefore Recommended that, since Nigeria doesn’t have control of oil prices, it is required that government diversify the economy to reduce the adverse effect of shocks emanating from the fluctuation of global oil prices, the country should diversify its export from oil exports to non-oil export Diversification of the economy is necessary to reduce the consequences of external shocks. The diversification of the oil revenue base would be a means of minimizing reliance on crude oil and petroleum products.