Asymmetric Impact of Oil Price and Income in Nigeria UEDT, 1980 – 2019: The NARDL Approach

Abstract

The study adopted the NARDL model study transportation fuel demand and its asymmetric effects of oil price and income variation on demand for gasoline fuel and diesel fuel in Nigeria. It pays attention to the short-run and long-run nonlinearities demands and supply conditions via positive and negative partial sum decomposition of oil price and income. Variables used in the study are a mixture of I (0) and I (1) series which justified the use of the Bounds test approach to cointegration. Thus, the result of the Bounds test affirms the existence of a long-run equilibrium relationship. Alternatively result of the NARDL model showed that both gasoline and diesel prices and income have short-run and long-run asymmetric effects on gasoline and diesel fuel demand by the transport sector in Nigeria. However, the degree of responsiveness of both gasoline and diesel fuel demand to changes in oil price and income is more on changes in income than changes in oil prices in the short run. It confirmed that population has a strong influence on passenger fuel demand than freight fuel demand which affirms the theory. It, therefore, recommends that government should embark on more structural policies that could control oil prices and stimulate economic activities in Nigeria. Keywords: Asymmetric oil price, income, Disaggregated Transpiration fuels Demand in Nigeria, UEDT and Nonlinear Auto Regression Distributed Lag (NARDL). DOI: 10.7176/JESD/13-6-08 Publication date: March 31 st 2022