Global Oil Price Shocks and Effects on Economic Growth: An Econometric Investigation of Nigeria

Abstract

This study is necessitated for the reason that global oil price shocks are bound to affect the pace of economic growth in Nigeria. Given that Nigeria is a net oil-exporting country makes it particularly vulnerable to oil price fluctuations. The study made use of secondary data covering the period from 1990 to 2019. While the Augmented Dickey-Fuller unit root test was used for preliminary analysis; ordinary least square (OLS) regression analysis was used for short-run estimates. A combination of Johansen Co-integration test, Vector Auto Regression analysis, Granger causality test, Variance Decomposition, Impulse Response tests and the ARCH/ GARCH modelling techniques were used for long run estimation All the tests helped to confirm the integrity of our models. The findings of the study indicate that, in the short run, there was sufficient evidence to show that oil price changes have a significant effect on economic growth. For the long run test, the Trace statistics and Max Eigenvalue tests point to a case of non-integration. At a ten year horizon, 71.31% of the variance in economic growth is explained by shocks; while the balance of 28.69% was accounted for by the changes in the global price of crude oil. In other words, the growth of the Nigerian economy has to do with the economy itself and to some extent, fluctuations or instability associated with the global prices of oil shocks. The ARCH/GARCH analysis indicates that there exists a first-order ARCH effect and that the GARCH in mean term was also significant. Succinctly put, the above results suggest that though erratic, there is evidence of volatility clustering of oil price on economic growth in Nigeria. The study, therefore, recommends that Nigeria splay down on the continued dominance of primary production and export and low-value addition. There is a need for a paradigm shift. Nigeria’s economic growth should be driven by a diversified production structure, essentially driven by growth in manufacturing as it would increase job offer, raise productivity and incomes. Otherwise, the Nigerian economy will remain trepid, fragile and susceptible to shocks emanating from global oil price fluctuations. Poverty is likely to persist in Nigeria without a robust manufacturing sector where innovation and technology would improve value addition and raise productivity. Lastly, since an average economy is cyclical, whence the Nigerian economy can pull through the present economic recession occasioned by the Coronavirus pandemic, she must learn to save for the rainy day. Nigeria should draw lessons from history and from past mistakes in order to avert the vagaries associated with oil price volatilities and consequent budget alignment and re-alignments.

Monetary Policy on Exchange Rate Volatility in Nigeria: Evidence from BARDL/ARCH and Garch Modellings

“…In addition, Ikechi and Anthony [8] investigated "the impact of exchange rate volatility on international trade in Nigeria. The study used secondary data from 1996 to 2018.…”

Effect of Oil Price Shocks on Selected Macroeconomic Variables in Nigeria (1990-2021)

“…The impact of oil prices on economies, especially in developing countries like Nigeria, is multifaceted. While developed oil producers benefit from value addition and stability, Nigeria, primarily exporting crude oil, faces challenges (Ikechi andAnthony 2020: Akinola, 2022). In the middle East, Asia and Eastern Europe countries, where oil is found have their growth rates between 15 % to 30 % of their gross domestic product (GDP) with increasing employment opportunities, favourable balance of payments.…”