Do Asymmetric Currency Price Fluctuations and Oil Price Shocks Matter for Growth in Nigeria? Evidence from Non-Linear Analysis

This paper examines the nexus between exchange rate fluctuations, oil price shocks, and growth in Nigeria, considering misspecification issues, endogeneity bias, and small sample size, which have not received adequate attention. Using a non-linear ARDL model, findings show that accounting for oil price and exchange rate asymmetries is important in explaining growth in the country for the period 1981-2016. The results also indicate that in the long-run, an exchange rate depreciation has a significant positive impact on growth. A negative oil price shock exerts a positive long-run effect on growth while higher oil prices have a negative impact. The oil price impact not only validates the Dutch disease hypothesis, but also reflects the government’s limited fiscal buffers and savings over time. Contemporaneously, oil price shocks affect growth distinctly as high oil prices boost growth while negative shocks retrogress productivity. While the impact of currency depreciation on growth was found to be positive, an appreciation hurt growth in the short term. The findings reinforce the need for the government to urgently minimize the country’s vulnerability to global crude oil markets as well as dependence on imports to stabilize the Nigerian Naira/ US dollar exchange rate.