Forecasting the Nigerian Gross Domestic Product in Correspondence to Crude Price Fluctuations

Abstract

The study aims to find a long-run empirical correlation between crude prices and the Nigerian Economy. Therefore, the Independent Variable for the study is the natural log of crude prices and the Dependent Variable would be the economic activity in Nigeria (Operationalized using the natural log of GDP). The research explores the Vector Autoregression Model (VAR Model), Serial Correlation LM Test, VAR Granger Causality/Block Exogeneity Wald Tests, Forecast Error Variance Decomposition (FEVD), and the Impulse Response Functions (IRFs). The time period of the study was from 1998 to 2008 (annual statistics were used), and the findings from the Augmented Dickey-Fuller Unit Root Test indicates that lngdp is stationary for an optimal maximum lag of 1 in 1st Level, including Intercept in the test equation. Furthermore, lngdp is found to have a causal impact on lncp. This finding is complemented by the findings of FEVD and the IRFs. The empirical analyses show that the lngdp is a strong determining factor of the lncp fluctuations and directly influences forecasts of the same, ceteris paribus. In the final analysis, the the researchers recommend that the Central Bank of Nigeria, while making policies relating to economic growth, should involve indicators of external commodity markets and should diversify from an oil-dependent economy to an economy which would be less susceptible to Dutch Disease.

Keywords:Statistical Analysis; Econometrics; Forecast Error Variance Decomposition; Impulse Response Functions

DOI: 10.7176/RJFA/12-22-11

Publication date: November 30th 2021