Oil Price Fluctuations and Output Performance in Nigeria

Oil Price Fluctuations and Output Performance in Nigeria

Abstract

This paper examines the impact of oil price movements on real output growth in Nigeria during the period 1970 to 2011 making use of annual time series data. The empirical analysis rests on dynamic VAR analytical framework. To capture the possible channels reflecting the fluctuations in the oil prices, the model includes money supply, real exchange rate, government spending and inflation. Our findings indicate the lagged effects of the VAR model are not able to capture any significant impact of changes in oil prices. The oil price shocks are therefore not found to directly contribute to output, exchange rate or inflation in the short run. They however, manifest significant and positive relationship with output growth in the long run. Following the VAR model results, the generalized impulse responses reaffirm the direct link between the net oil price shock and growth, as well as the indirect linkages.

Introduction

One of the major challenges of policy makers all over the world is increased variations in oil prices. Since the foremost oil shock of 1973, there have been several serious fluctuations and instabilities in the global oil price. These shocks in the price of oil are largely defined by the results obtained from changes internationally, in either the supply or demand side of the oil market (Hamilton, 1983; Wakeford, 2006). As an importer of refined petroleum products and exporter of crude oil, the country is vulnerable potentially to volatilities oil price. These changes have been traditionally traced to supply side disruptions such as OPEC supply quotas, political upheavals in the oil-rich Middle East, activities of militant groups in the Niger Delta region of Nigeria and global economic meltdown of late 2007. This shocks could negatively (fall) or positively (rise) influence the gross domestic product of net crude oil exporting economies and a adversely influencing the economies of net crude oil importing countries. Despite main focus on oil price shocks and the macroeconomy analyses directed towards oil importing developed countries, some recent studies have examined the same for developing countries like Philippine (Raguindin and Reyes, 2005), Venezuela (El-Anashasy et al., 2005), Nigeria (Iwayemi and Fowowe, 2011), Iran (Farzanehan and Markwardt, 2009), Thailand (Rafiq et al., 2009), Tunisia (Jbir and Zouari-Ghorbel, 2008) and China (Cong et al., 2008; Tang et, al., 2010; Du et al., 2010). Previous works focussed on the United States observed that rising prices of oil on the one hand, resulted in output reduction and higher inflation level in the 1970s and early 1980s. On the other, the decline in oil price had an exactly contrasting impact (Adeniyi, 2009). Rafiq et al (2009) while summarizing previous studies revealed that oil price shocks have significant asymmetric impact on macroeconomic fundamentals; the negative shocks having much larger impact than the positive ones. The role of oil price shocks in the experience by developing economies with the net crude oil export status has been scantily covered in the literature.

Chapters: 1 - 5

Delivery: Email

Number of Pages: 65

Price: 3000 NGN

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