Macroeconomic Aggregates and Oil Price Vagaries in Nigeria: An Impact Assessment

Abstract

This study investigated the impact of negative oil price changes on macroeconomic aggregates in Nigeria from 1981 to 2020 using the autoregressive distributed lagged (ARDL) and the vector error correction models. Evidence from the findings showed that unemployment, foreign direct investment, and real gross domestic product are important determinants of oil price vagaries. In addition, there is empirical support for a positive relationship between oil price and unemployment on the one hand and a negative relationship between oil price and imports, foreign direct investment, and real gross domestic product on the other hand in both the short and long run. This implies that any decline in oil price is associated with a decrease in foreign direct investment and imports, and an increase in unemployment thereby resulting to the worsening of real gross domestic product in Nigeria during the period. In view of the findings, the study recommends a culture of uninterrupted savings of oil proceeds during episodes of oil price boom and by implication boosting of foreign reserves to provide sufficient cover for imports during periods of oil price decrease. In addition to this recommendation is the continuous clamour for a properly diversified economy away from oil dependence. In periods of negative oil price shocks which discourages investment, the government should encourage investors through various incentives such as tax holidays and havens, reduce cost of funds using the appropriate agency of government and ensure the provision of enabling environment and infrastructure (such as power, security, and roads) for investments to strive and improvement in the ease of doing business in the country. This will result in job creation; reduce unemployment and poverty, thereby improving the gross domestic product.