Abstract
The study empirically examines the effect of oil price shocks and food importation on economic growth in Nigeria along with two control variables i.e. exchange rate and inflation using Structural Vector Autoregressive (SVAR) Model covering the period of 1970 to 2015. The result from SVAR short-run pattern and long-run pattern indicate that GDP has recently been affected by all variables in the model. More also, it indicates a significant permanent effect of crude oil price shocks and food imports on economic growth, while the result further indicates a transitory effect of exchange rate and inflation on economic growth. For significant t-value of the long run SVAR estimate matrix, confirms long effect of crude oil price shocks, food imports, exchange rate and inflation on economic growth in Nigeria. The results from structural response indicate that crude oil have high positive impact on GDP at the initial period and negative impact at the end of the period. Furthermore, food imports have high negative effect on GDP, while GDP response negatively to exchange rate and inflation rate from the period. The result from the structural decompositions indicates that crude oil price and food imports and exchange rate contribute more variability to GDP, while inflation contribute less variability in explaining the variation of GDP in Nigeria. The study recommends that government should come up with a policy that will focus on alternative sources of government revenue by investing more in real sectors especially agriculture in order to withstand vicissitudes of oil shocks in future.
Highlights
Oil represents one of the most important macroeconomic factors in the world economy, and the crude oil market is the largest commodity market in the world (Oriavwote and Eriemo, 2012)
The results show that the variables are cointegrated and that oil prices and exchange rate were significant in predicting the economic growth
In line with the findings of this study, the study conclude that GDP has recently affected by crude oil price, food imports, exchange rate and inflation in both short run and long run period
Summary
Oil represents one of the most important macroeconomic factors in the world economy, and the crude oil market is the largest commodity market in the world (Oriavwote and Eriemo, 2012). Exchange rate volatility occasioned by unfavourable oil price movements contributes to increasing the foreign exchange risk of businesses and leads to higher cost of living when an economy is import dependent like Nigeria. International oil prices witness a sharp fall during the global economic crisis of 2008 This led to a fall in oil revenues and unfavourable exchange rate movements for major oil-exporting economies especially those that were not well-diversified. The increase in the price of oil in the international market is a welcomed development for Nigeria as it should be recalled that the 2016 budget is fixed at $38 per barrel (Taiwo and Olumuyiwa, 2015; EIA, 2016). This study intends to bridge the aforementioned gaps in the literature Against this background, the study intends to investigate the structural effect of oil price shocks and food importation on economic growth in Nigeria. Section five deal with conclusion, and provides recommendations for policy implications
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