Oil Price Uncertainty and Industrial Output in Nigeria

Abstract

Concerned by the dismal performance of Nigeria’s industrial sector as evidenced by the sector’s inauspicious and uneven contributions to the country’s aggregate output and total government earnings, this study has been embarked upon to examine the impact of crude oil price volatility on industrial output in Nigeria. The Ordinary Least Square (OLS) technique was employed in estimating the time series data used in the study which spans from 1981–2019. The Exponential Generalized Autoregressive Conditional Heteroskedasticity (EGARCH) model was estimated to capture crude oil price fluctuations and government oil revenue fluctuations by obtaining the conditional variances from the estimated results. The study found that crude oil price fluctuation has negative impact on industrial output, while an increase in government oil revenue fluctuation results in a significant decrease in industrial output. It was also found that an increase in unearned government oil revenue leads to an insignificant decrease in industrial output, while government recurrent expenditure exerts positive but insignificant impact on industrial output. Domestic investment was found to have a positive and significant impact on industrial output while population growth has a positive and significant impact on industrial output. The study concludes that it is government’s financial imprudence that allows oil price volatility to be hazardous to Nigeria’s industrial output. It recommends more effective export diversification policies and a pro-development government financial structure that takes erratic oil revenue and inimical effects of high unproductive expenditures into account.