Oil price shocks in Nigeria: implications on economic growth
Ikechukwu Eze Okereke, Ikwor Ogbonnaya, Okereke Chukwu Ugwu, Walter K. Ohagoro
Abstract
Persistent fluctuations in oil prices remain a major source of macroeconomic instability in Nigeria. Against this backdrop, this study examines the impact of oil price volatility on economic growth in Nigeria using annual data from 1970 to 2022. Specifically, it evaluates how volatility in petrol, diesel, gas, and kerosene pump prices influences the growth rate of real gross domestic product (RGDP). The study relies on secondary data obtained from the World Bank database, the Central Bank of Nigeria (CBN) Statistical Bulletin, and volatility series generated using the GARCH framework. The Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) tests confirm a mixture of I(0) and I(1) variables, justifying the use of the Autoregressive Distributed Lag (ARDL) model. The results indicate that, in the long run, petrol and kerosene price volatilities have negative and statistically significant effects on RGDP, suggesting that instability in these key energy prices constrains economic growth. In contrast, diesel and gas price volatilities are not statistically significant, indicating no meaningful long-run impact on aggregate output. Evidence from the EGARCH model further reveals asymmetric volatility in petrol prices, where negative shocks exert stronger disruptive effects than positive shocks. The study concludes that volatility in petrol and kerosene prices poses significant risks to economic stability in Nigeria. It recommends the adoption of effective price stabilization measures, including strategic reserves, hedging mechanisms, and targeted subsidies, alongside broader structural reforms aimed at economic diversification and resilience to external shocks.