IMPACT OF OIL PRICE FLUCTUATIONS ON THE ECONOMY OF NIGERIA
Keywords:
International oil price behavior; oil price fluctuations; GDP, Aggregate demand; the transmission mechanism; Vector autoregression. JEL Classification: O47, Q41, Q43.Abstract
Oil price fluctuations give rise to several macroeconomic impacts, which bring about economic
conditions that are unhealthy for sustainable economic growth. This study aimed at extending the frontier of knowledge by examining impact of oil price fluctuations on Nigeria’s economy (over the period 1970Q1 –2014Q4), using Vector Autoregression (VAR) technique, and also investigating whether oil price has long run relationship with Nigeria’s real GDP, inflation, unemployment, exchange rate and government expenditure, using the Johansen cointegration technique. The macroeconomic variables employed for the study were international oil price, real GDP, inflation, unemployment, exchange rate and government expenditure. After ensuring data stationarity, the study found that oil price had long run relationship with the real GDP, inflation, unemployment, exchange rate and government expenditure; that oil price fluctuations have positive impact on inflation and unemployment; that oil price fluctuations have negative impact on real GDP, government expenditure and exchange rate. However, these impacts were not significant. It shows that Nigeria is not highly susceptible to oil price fluctuations. This is because, over the years, the crude oil products in Nigeria have been subsidized, bringing about resilience to oil price fluctuations. Also, macroeconomic mechanisms create resilience to oil price fluctuations, especially supply side responses to oil price fluctuations. The study suggested that the National Assembly, the
budget and planning office and the National Economic Planning Commission should endeavour to consider the volatility of oil price in budgetary planning and in making economic plans so that oil price fluctuations will not tamper with government fiscal plans; that the respective Nigerian government agencies should prevent macroeconomic disturbances which could arise from oil price fluctuations by putting control measures on the macroeconomic indicators that are related to oil price.
