The Impact of Changes in Crude Oil Prices on Economic Growth in Nigeria: 1986 – 2015

Abstract

The study empirically examined the impact of changes in crude oil prices on economic growth in Nigeria from 1986 to 2015. Times series data on crude oil price, inflation rate, real effective exchange rate, fuel pump price and GDP growth rate were gathered from secondary sources that include World Bank Development Indicators, BP Statistics and Central Bank of Nigeria (CBN) Statistical Bulletin. Ng-Perron and Zivot-Andrews Tests, Johansen’s co-integration Test, Granger Causality Test and the Vector Error Correction Model (VECM) were employed as techniques of analysis. The time series property examined showed the existence of co-integration among the variables while the empirical results suggest that the ECT coefficients have negative signs and are statistically significant in all VECMs. In addition to that, the significance of ECT also exhibits that if the system is exposed to shock, it will converge to the long-run equilibrium at the following speed: for GDP (-0.8002), inflation (-0.6714) and real effective exchange rate (-0.5715) VECMs compare to the convergence speed of fuel pump price (-0.6047) and crude oil price        (-0.0436), VECMs. The study found out that a positive and unidirectional relationship that runs from crude oil prices to GDP growth rates exists. The value of R² and that of adjusted R² stood at 0.6177 and 0.5085 respectively. The value of F-statistic is 5.6570 and it is greater than the tabulated value of 2.76. The study concluded that crude oil price exert positive influence on the economic growth of Nigeria. The study recommends the need for diversification, building of buffers, more refineries and overhaul of the existing ones as well as the adoption of floating exchange rate policy.

Keywords: Crude Oil Prices, Economic Growth.