CRUDE OIL MARKET FORCES AND EXCHANGE RATE VOLATILITY: IMPLICATIONS FOR ECONOMIC GROWTH IN NIGERIA
Henry A. Eggon PhD, Eloyi, Loveth Utuh and Atiku, Adam Shuaibu
Volume 12 Issue 3
Abstract
This study investigates the impact of key determinants of crude oil prices crude oil demand, crude oil supply, crude oil reserves, foreign exchange rate, and inflation on Nigeria’s economic growth, measured by real gross domestic product (RGDP), from 1990 to 2023. The analysis begins with unit root tests, which confirm that all variables are stationary at first difference, indicating an integration order of I(1). Cointegration results show the existence of a long-run relationship among the variables, justifying the application of the Vector Autoregression (VAR) framework. The VAR lag selection criteria identify lag 2 as optimal, implying that the variables exhibit meaningful dynamic interactions over two periods. The long-run VAR estimates reveal mixed effects of crude oil price determinants on economic growth. Crude oil demand and crude oil supply show positive but statistically insignificant effects on RGDP. In contrast, crude oil reserves, foreign exchange rate, and inflation rate exert negative but insignificant influences on growth over the study period. These findings suggest that crude oil market dynamics and macroeconomic conditions jointly shape Nigeria’s growth trajectory, with exchange rate instability and inflation serving as critical transmission channels for the effects of oil price fluctuations. The study concludes that crude oil price determinants exert both supportive and adverse influences on economic growth, reflecting Nigeria’s structural dependence on oil and vulnerability to external shocks. The study recommends deeper energy diversification, improved oil production efficiency, strengthened foreign exchange management, and macroeconomic stabilization policies to mitigate the adverse effects of oil price volatility and enhance long-term economic resilience. Keywords: Crude Oil Demand, Crude Oil Supply, Exchange Rate, Economic Growth
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