Oil price shocks and macroeconomic activities: evidence from an oil dependent exporting economy

The upward trend in the global price of crude oil in recent years has led to increasing concerns about its macroeconomic implications especially in developing countries. While empirical research has concentrated on developed and oil importing countries, there is scant research on the impact of oil price volatility on oil-dependent exporting economies. Using quarterly time series data from 1970q1 to 2011q4, this paper analyses the impact of oil price shocks on output and some macroeconomic variables in Nigeria. The findings reveal that oil price shocks have substantial effects on output and other macroeconomic variables in Nigeria. The estimated elasticity of 0.164 suggests that when the real oil price increases by 100%, the real GDP would increase by 16.4%. In addition, real output in Nigeria is positively associated with public expenditure consumption, money supply and imports, and is negatively influenced by real depreciation of the domestic currency. The main policy implication is that in order to mitigate the effect of the continuous swings in oil prices on the Nigerian economy and disruption to development programmes, it is germane that government continues to maintain the national sovereign wealth fund (NSWF) account to stabilise government revenue.