Forecasting the Nigerian Gross Domestic Product in Correspondence to Crude Price Fluctuations

Siddhant Jhawar

doi:10.7176/rjfa/12-22-11

Abstract

The study aims to find a long-run empirical correlation between crude prices and the Nigerian Economy. Therefore, the Independent Variable for the study is the natural log of crude prices and the Dependent Variable would be the economic activity in Nigeria (Operationalized using the natural log of GDP). The research explores the Vector Autoregression Model (VAR Model), Serial Correlation LM Test, VAR Granger Causality/Block Exogeneity Wald Tests, Forecast Error Variance Decomposition (FEVD), and the Impulse Response Functions (IRFs). The time period of the study was from 1998 to 2008 (annual statistics were used), and the findings from the Augmented Dickey-Fuller Unit Root Test indicates that lngdp is stationary for an optimal maximum lag of 1 in 1st Level, including Intercept in the test equation. Furthermore, lngdp is found to have a causal impact on lncp. This finding is complemented by the findings of FEVD and the IRFs. The empirical analyses show that the lngdp is a strong determining factor of the lncp fluctuations and directly influences forecasts of the same, ceteris paribus . In the final analysis, the the researchers recommend that the Central Bank of Nigeria, while making policies relating to economic growth, should involve indicators of external commodity markets and should diversify from an oil-dependent economy to an economy which would be less susceptible to Dutch Disease. Keywords: Statistical Analysis; Econometrics; Forecast Error Variance Decomposition; Impulse Response Functions DOI: 10.7176/RJFA/12-22-11 Publication date: November 30th 2021

Highlights

Nigeria is generally referred to as an ‘Oil Economy’ because of the country’s large amount of oil reserves
The study accounts for the cyclical nature of the commodity prices and compares it with the cyclical nature of the Nigerian GDP to find any possible lags in the time series of both sets of data
All the variables are operationalized in United States Dollars (US$)

Summary

Introduction

Nigeria is generally referred to as an ‘Oil Economy’ because of the country’s large amount of oil reserves. The Petroleum Sector in Nigeria currently contributes to less than 10 percent of the country’s GDP.[1] To these ends, the study analyzes the ramifications of changes in the market prices of the Crude Petroleum on the GDP. The study accounts for the cyclical nature of the commodity prices and compares it with the cyclical nature of the Nigerian GDP to find any possible lags in the time series of both sets of data. While using the Impulse Response Functions, the sets of data

Methods

Findings

Conclusion