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Oil Price Volatility and Economic Growth in Nigeria: a Vector Auto-Regression (VAR) Approach

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  • Edesiri Godsday Okoro

    (Nnamdi Azikiwe University)

Abstract

The study examined oil price volatility and economic growth in Nigeria linking oil price volatility, crude oil prices, oil revenue and Gross Domestic Product. Using quarterly data sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin and World Bank Indicators (various issues) spanning 1980-2010, a non-linear model of oil price volatility and economic growth was estimated using the VAR technique. The study revealed that oil price volatility has significantly influenced the level of economic growth in Nigeria although; the result additionally indicated a negative relationship between the oil price volatility and the level of economic growth. Furthermore, the result also showed that the Nigerian economy survived on crude oil, to such extent that the country‘s budget is tied to particular price of crude oil. This is not a good sign for a developing economy, more so that the country relies almost entirely on revenue of the oil sector as a source of foreign exchange earnings. This therefore portends some dangers for the economic survival of Nigeria. It was recommended amongst others that there should be a strong need for policy makers to focus on policy that will strengthen/stabilize the economy with specific focus on alternative sources of government revenue. Finally, there should be reduction in monetization of crude oil receipts (fiscal discipline), aggressive saving of proceeds from oil booms in future in order to withstand vicissitudes of oil price volatility in future.

Suggested Citation

  • Edesiri Godsday Okoro, 2014. "Oil Price Volatility and Economic Growth in Nigeria: a Vector Auto-Regression (VAR) Approach," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 10(1), pages 70-82, February.
    • Handle: RePEc:dug:actaec:y:2014:i:1:p:70-82
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    File URL: http://journals.univ-danubius.ro/index.php/oeconomica/article/view/2113/2058
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    References listed on IDEAS

    as
    1. Amir Ban & Nati Linial, 2011. "Market Share Indicates Quality," Discussion Paper Series dp590, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
    2. Oluwatosin Adeniyi & Abimbola Oyinlola & Olusegun Omisakin, 2011. "Oil price shocks and economic growth in Nigeria: are thresholds important?," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 35(4), pages 308-333, December.
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    2. Akif Musayev & Khatai Aliyev, 2017. "Modelling Oil-Sector Dependency of Tax Revenues in a Resource Rich Country: Evidence from Azerbaijan," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 65(3), pages 1023-1029.
    3. Orkideh Gharehgozli & Sunhyung Lee, 2022. "Money Supply and Inflation after COVID-19," Economies, MDPI, vol. 10(5), pages 1-14, April.
    4. Rosnawintang Rosnawintang & Tajuddin Tajuddin & Pasrun Adam & Yuwanda Purnamasari Pasrun & La Ode Saidi, 2021. "Effects of Crude Oil Prices Volatility, the Internet and Inflation on Economic Growth in ASEAN-5 Countries: A Panel Autoregressive Distributed Lag Approach," International Journal of Energy Economics and Policy, Econjournals, vol. 11(1), pages 15-21.

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