THE ANALYSIS OF OIL PRICE SHOCK IN NIGERIA (1970-2014)
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- NGN 5000
ABSTRACT
An increase or decrease in crude oil price can both be pain and gain to the Nigerian’s economy simultaneously, this is because a strong link between the country’s budgetary operations and the happenings in the international oil market exists. Therefore, this research employed the restricted vector auto regression (VAR) technique, to empirically investigate into the impact of oil price shock on Nigeria’s economy from 1981 to 2014. Both the Augmented Dickey Fuller and Philip Perron unit root test, revealed that all the variables considered in the study are non-stationary at levels, but achieved stationary after estimating their first difference. Furthermore, majority of the variables were found to have long run relationships, justifying the need to estimate the model through the vector error correction model. The short run coefficient deduced from the VECM revealed that oil price shock price shock significantly impacts economic growth in the short run. Also, both the impulse response function and variance decomposition results confirmed the Dutch disease syndrome associated with Nigeria economy, real GDP negatively responded to oil price shock in all the periods despite the positive response of real government expenditure to oil shock in most period. This implies that economic growth is negatively affected in the long run, even though its impact on the real government expenditure seems to be positive mostly, the Pass-through effect it has on high inflation rate, declining exchange rate explains its negative effect on real GDP. In conclusion this study recommends that, for long run macroeconomic growth and performance there is a strong need for policy makers to concentrate on policy that will stabilize and strengthen the macroeconomic structure of the country with specific focus on; alternative sources of government revenue, aggressive savings from revenue proceeds in periods of oil booms, so as to withstand variations of oil shocks in future.
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