PhD, Associate Professor, Department of Economics, Bingham University, Nigeria
Assistant Lecturer, Department of Economics, Bingham University, Nigeria
Assistant Lecturer, Department of Economics, Bingham University, Nigeria
The price of oil is one of the important macroeconomic indicators because of the extreme importance of supplying oil to different countries of the world to meet their energy needs. As Nigeria’s economy depends on oil prices, the country remains vulnerable to fluctuations in world oil prices. During periods of rising oil prices caused by macroeconomic and political conditions in the international market, the state usually has a positive trade balance, there is an increase in foreign exchange reserves and the revaluation of the national currency. The purpose of the article is to evaluate the relationship between oil price change and Nigeria’s economic growth rate using regression analysis. The source of statistical information is data from the National Bureau of Statistics, the Nigerian National Petroleum Corporation and the Nigerian Energy Commission. By checking the time series for steady-state using the advanced Dickie-Fuller test, a regression equation is constructed where the dependent variable is represented as the price of oil and the independent variables are key macroeconomic indicators. The econometric model constructed is adequate because the determination coefficient and the adjusted determination coefficient are 0.97 and 0.96 respectively. The Darbin-Watson statistic in the model is 1.98, meaning the model is reliable. Oil price fluctuations have been found to be related to investment, economic growth and exchange rates, as well as to inflation. The paper argues that the use of the shock of oil prices should be supported, as it promotes economic growth and is not inflationary. Therefore, the authors believe that the government, which is the main beneficiary of cash, should also implement strategies that counterbalance the propensity for economic downturn. Based on the analysis, a set of priority measures was proposed: enhancing financial liberalization, combating corruption, transparency of government activities, creating an open currency market, and developing non-inflationary monetary and fiscal strategies.
Keywords: oil price, macroeconomic variables, energy needs, Organization of Petroleum Exporting Countries, Dickie-Fuller Extended Test, Petroleum Exporters.
JEL Classification: E41.
Cite as: Awujola, A., Iyakwari, A. D. B., Bot, R. E. (2020). Examination Of The Relationship Between Oil Price Shock And Macroeconomic Variables In Nigeria. SocioEconomic Challenges, 4(1), 102-110. http://doi.org/10.21272/sec.4(1).102-110.2020.
- Adeleke Omolade, Harold Ngalawa & Adebayo, K.L. Charfeddine (2019). Crude oil price shocks and macroeconomic performance in Africa’s oil-producing countries. Cogent Economics & Finance, 7(1), 45-59. DOI: 10.1080/23322039.2019.1607431.
- AlhassanAbdulkareem and Kilishi, A. Abdulhakeem (2016). Analysing Oil Price-Macroeconomic Volatility in Nigeria. CBN Journal of Applied Statistics, 7(1), 35-49. DOI:https://www.researchgate.net/publication/320173354
- Alley, I. Asekomeh, A. Mobolaji, H. &Adeniran, Y. (2014). Oil price shocks and Nigerian economic growth. European Scientific Journal, 10(19), 375-391.https://eujournal.org/index.php/esj/article/view/3808
- Ani, W. Ugwunta, D. Oliver, I. &Eneje, B. (2014). Oil price volatility and economic development: Stylized evidence in Nigeria. Journal of Economics and International Finance, 6(6), 125–133.https://academicjournals.org/journal/JEIF/article-full-text-pdf/6165B7845627
- Charles, O. M., Felicia, C. A., Jonathan E. O, Okoro, E. U., Aja E., and Kenneth, C. (2019). Oil Price Fluctuation, Oil Revenue and Well-being in Nigeria. International Journal of Energy Economics and Policy,9(1), 346-355.https://www.researchgate.net/publication/330074870
- Eltony, M.N. and M. Al-Awadi (2001). Oil price fluctuations and their impact on the macroeconomic variables of Kuwait: a case study using a VAR model. International Journal of Energy Research, 25(11), 939-959.https://www.researchgate.net/publication/227500161
- Gummi, U.M., Buhari, A.I., & Muhammad, A. (2017). Oil Price Fluctuations and Economic Growth in Nigeria (Evidence from Granger Causality Test). Australasian Journal of Social Science, 3, 1–16. DOI: 10.3923/aujss.2017.1.16.
- Harbor, F. Ifeyinwa and Oleka D. Chioma (2019). Impact of Oil Price Changes on Selected Macroeconomic Variables in Nigeria. South Asian Journal of Social Studies and Economics, 4(1), 1-10. DOI: https://doi.org/10.9734/sajsse/2019/v4i130116.
- Hazarika, I. (2015). An Analytical Study on the Impact of Fluctuating Oil Prices on OPEC Economies.International Journal of Trade, Economics and Finance,6(3), 161–164.https://.org/8877/03212372513.517
- Joseph, C.O., Ogbonna, B.M., andChikeziem, F.O. (2019). Oil Price Shocks and Macroeconomic Variables in Nigeria: A Local Projection Impulse Response Function Approach.International Journal of Economics, Commerce and Management United Kingdom, 7(1), p. 43-55.http://ijecm.co.uk/wp-/2019/01/713.
- Lukman, O. Oyelami (2018). Effects of Oil Price Movement on Nigerian Macroeconomic Variables: Evidence from Linear near and Nonlinear ARDL Modeling, Iranian Economic Review, 22(4), 908-933. DOI: 10.22059/ier.2018.67849.
- Mathew, E. Rotimi and Harold, Ngalawa (2017). Oil Price Shocks and Economic Performance in Africa’s Oil Exporting Countries, ActaUniversitatisDanubiusEconomica, 13(5),65-77.https://ideas.repec.org/a/dug/actaec/y2017i5p169-188.html
- Nagmi, M. Aimer (2016). The Effects of Fluctuations of Oil Price on Economic Growth of Libya.Energy Economics Letters, 3(2), 17-29.http://www.aessweb.com/pdf-files/EEL-2016-3(2)-17-29.
- Ogundipe, O.M., Ojeaga, .P. &Ogundipe, A. O. (2014). Oil Price and Exchange Rate Volatility in Nigeria Oil Price and Exchange Rate Volatility in Nigeria.IOSR Journal of Economics and Finance, 5(4), 1–9. http://www.iosrjournals.org/iosr-jef/papers/Vol5-Issue4/A0540109.
- Olayungbo, D. O. (2019). Effects of Global Oil Price on Exchange Rate, Trade Balance, and Reserves in Nigeria: A Frequency Domain Causality Approach. Journal of Risk and Financial Management, 3(2), 23-38.DOI: https://doi.org/10.3390/jrfm12010043.
- Olomola, P.A. (2006). Oil Price shock and aggregate Economic activity in Nigeria.African Economic and Business Review,4(2), 20-34. https://www.semanticscholar.org/paper/OIL-PRICE-SHOCK-AND-AGGREGATE-ECONOMIC-ACTIVITY-IN-Olomola/83879109c79e52615a338021cec526ec76505bad
- Oluwatoyin A.M., Adegboye, F. B. (2014). An Analysis of the Effect of Oil Price Shock and Exchange Rate Instability on Economic Growth in Nigeria.Scottish Journal of Arts, Social Sciences and Scientific Studies, 3, 94-107. http://covenantuniversity.edu.ng/2607/#.XksRTzJKjIU
- Omo, A. and Bashir, O. K. (2015). Oil Revenue, Pubic spending and Economic Growth relationships in, Nigeria. Journal of Sustainable Development, 3(3), 113-123. DOI: http://dx.doi.org/10.5539/jsd.v8n3p113.
- Oriakhi, D.E., & Osaze, I.D. (2013). Oil Price Volatility and its Consequences on the Growth of the Nigerian Economy: An Examination (1970-2010). Asian Economic and Financial Review, 3(5), 683-702.https://econpapers.repec.org/article/asiaeafrj/2013_3ap_3a683-702.htm
- Uba J. and Umut H. (2019). Oil Price Shocks and Macroeconomic Instability in Nigeria: Evidence from Gvar. International Journal of Contemporary Economics and Administrative Sciences, 9(1), 94-118.DOI: https://doi.org/10.5281/zenodo.3262261.