Linear and asymmetric impacts of oil price shocks in an oil‐importing and ‐exporting economy: the case of Nigeria

Abstract

AbstractGiven its economic structure, high‐energy intensity and its simultaneity as an oil‐importing and ‐exporting economy, Nigeria stands out as a special case to study the oil price–macroeconomy relation. By using a structural vector autoregressive model with 10 theoretically derived structural factorizations, this paper studies the linear and asymmetric impacts of oil price shocks on the Nigerian economy, focusing on the supply side effects, wealth transfer effects, inflation effects and real balance effects of oil price shocks between the period 1970Q1 and 2008Q4. Overall, the results show that oil price shocks have asymmetric impacts in one direction (positive) on the Nigerian economy and are not a major determinant of macroeconomic activity in Nigeria. Using Granger causality analysis, the paper also investigates the short‐run impacts of oil price shocks on the Nigerian economy. The results showed that depending on the measurement of oil price shock used, it only Granger‐caused output and inflation in the short run. This revealed that though Nigeria is a major exporter of crude oil, domestic macroeconomic trends do not significantly influence the dynamics of global oil markets, i.e. oil prices are strictly exogenous to the Nigerian economy. These insights have inspired us to recommend that the common practise of national development planning, premised on forecasts of anticipated oil prices should be de‐emphasized in Nigeria.