Abstract
Nigeria as an oil exporting mono-economy is susceptible to fluctuations in the world oil prices. About 97 percent of the government’s revenues are gotten from proceeds from oil export. The study attempts to assess the behaviors of macroeconomic variables in the face of oil price volatility in Nigeria. The empirical evidences reveal that macroeconomic variables were susceptibility to volatility in Oil Price. The theoretical framework is based on the Mundel-Flaming model and adopts the variance decomposition and impulse response functions to explain the dynamic properties of the VAR methodology. The impulse response results reveal that a one standard deviation in oil price will trigger a significant change in RGDP, GEXP, INFLATION and IMPORT both in the short and long run, and IR and EXR significantly only in the short run. Finally, the variance decomposition of RGDP, GEXP and EXR reveals that the variability in them were significantly explained by oil price volatility and other tests ran reveals a consistent result. Therefore, volatility in oil price has direct impact on real GDP, Government expenditure, inflation, interest rate, exchange rate and import. The researchers therefore recommend diversification of the economy to other sectors, financial prudence, sound fiscal policy and the lowering of interest rate to stimulate domestic investment.
Highlights
Over the decade’s oil has remained the main source of revenue to the Nigerian economy
The highest standard deviation was recorded by Government Expenditure of 1651571 while the least standard deviation of 2.878867 is recorded by Interest Rate
To test for stationarity or the absence of unit roots was carried out using the Augmented Dickey Fuller test (ADF) and Philip Perron which gave almost the same result that all the variables are integrated of order one I(1) except inflation rate and import under the ADF test which were stationary at level, the variables does not have a unit test
Summary
Over the decade’s oil has remained the main source of revenue to the Nigerian economy. The boom of revenue that the federal government of Nigeria realizes from the oil sector is far more than all the other revenue it gets from other sources of fund put together, consisting over ninety seven percent (97%) of the country’s foreign earnings. This invariably has led to the abandonment or better still the death of most of the other sectors of the economy, making the Nigerian economy a mono-economy that is completely dependent on oil. The economy is susceptible to fluctuations in the oil price but to global macroeconomic shocks
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