FUEL SUBSIDY REMOVAL AND THE NIGERIAN ECONOMY: A SYSTEMATIC REVIEW

Abstract

The federal government of Nigeria has recently announced the removal of subsidy on fuel. Economic analysts and commentators have aired their views about the implications of the policy, but with mixed feelings. This study seeks to use the existing body of knowledge to guide governments’ decision. The study conducted a systematic review of the literature to find the implications of the policy on the Nigerian economy. A protocol was developed following the PRISMA procedure. A search was conducted in Scopus and 43 empirical papers were recorded. A total of 21 articles met the inclusion criteria while 22 papers were excluded. The result shows that fuel subsidy removal undermines households’ welfare through the erosion of real income. It also reduces aggregate demand and increases the cost of production. However, the effect of the policy on revenue savings and environment is positive. The findings imply that in developing countries like Nigeria, where fuel has limited substitutes, such policy may aggravate the existing poverty, cripple businesses and causes recession. On environment, the policy may lead to “green paradox”, where more environmentally unfriendly activities would be pursued, such as failing of trees for firewood, as alternative energy sources are not readily available and affordable. It is suggested that Nigerian government should pursue fuel subsidy reform with caution and ensure that adequate compensation schemes are rolled out.