ASYMMETRIC RESPONSE OF OIL PRICE CHANGE ON THE NIGERIAN ECONOMY

Aroyehun, M.O., Sa’ad, S., Saheed, Z.S. and Alfa, Y.
Volume 7 Issue 1

Abstract

Shock in crude oil prices the world over has had adverse effected on the world economy, especially in the areas of general price (inflation), exchange rate, foreign reserves, currencies crisis, declining government revenue, and ultimately, threat in terms of ability to meet financial obligations as at when due. In Nigeria for example, in 2014, oil price declined by 24 per cent to a four-year low of 81 dollar by the last quarter of 2014. The price further falls from USD114.91 on January 31 to USD102.12 on May 31, and stood at USD57.8 and 67.6 by the first quarter of 2015. The resultant effect has been a large out pour of policies among policy makers and contributions from the academia. However, none of these policy measures could not be said to have put the Nigerian economy on the path of sustainable growth. It is against this backdrop that this study examines the asymmetric impacts of oil price on the Nigerian economy using monthly data covering a period of 457 months from January, 1980 – January, 2018. Data for the study were collected from the database of World Bank Development Indicators (WDI) and international financial statistics (IFS). The variables on which data were collected are oil prices (OILP), inflation (INFL), exchange rate (EXCR) and gross domestic product (RGDP). OILP was decomposed into maximum, minimum and recovery prices to allow for estimation of asymmetric response of GDP to oil price shock. The data were analyzed using the Robust Least Square (RLS) regression model and the maximum likelihood estimation method. Findings from the study show that GDP in Nigeria respond positively to symmetric oil price change but negatively to asymmetric oil price change. While the impact of symmetric oil price on EXCH is negative, it is positive for INFL. However, asymmetric oil price has positive impact on both EXCH and INFL. The implication is that the economic growth of the Nigeria is driven by external forces, since crude oil prices are determine by exogenous factors. This means that, if crude oil prices decline the GDP of the country is not likely going to increase. Based on the findings, the study recommends the need for the diversification of the Nigeria’s revenue sources to make the economy less oil dependent.

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