Oil Price Volatility and Business Cycles in Nigeria

Open access

Abstract

The effect of oil price volatility on the business cycle (measured as fluctuations in real GDP) in Nigeria is investigated, while controlling for effects of other variables such as inflation, exchange rate, money supply, trade openness and foreign direct investment. Volatility in real GDP and oil price is generated through the EGARCH process. The ARDL approach to cointegration and error correction modeling is employed for analysis of data covering the period from 1970 to 2015. The study finds positive and significant short-run effect of oil price volatility on real GDP volatility, and no significant long-run effect. The short-run and long-run effects of other variables on business cycle (real GDP volatility) in Nigeria are not statistically significant. This suggests that short-run fluctuations in real GDP are engendered mainly by oil price volatility. This could be attributed to the precarious dependence of the country on oil export. The paper recommends channeling of efforts by the government towards diversifying the productive base and exports of the country as measure to reduce volatility in the real GDP.

Abdulkareem, A. and Abdulkareem, K. A. (2016). Analysing Oil Price – Macroeconomic Volatility in Nigeria. CBN Journal of Applied Statistics, 7(1), 1-22.

Adam, P., Rianse, U., Cahyono, E., Rahim, M. and Syarif, M. (2015). Modelling of the Dynamics of Relationship between World Crude Oil Prices and Indonesia’s Trade Balance: An LVAR Analysis. Journal of Economics and Sustainable Development, 6(4), 156-161.

Aregbeyen, O. and Fasanyan, I. O. (2017). Oil Price Volatility and Fiscal Behaviour of Government in Nigeria. Asian Journal of Economic Modeling, 5(2), 118-134.

Burns, A. F. and Mitchell, W. C. (1946). Measuring Business Cycles, New York, NY: National Bureau of Economic Research.

Chen, S. and Hsu, K. (2012). Reversed Globalisation: Does High Oil Price Volatility Discourage International Trade? MPRA Paper No. 36182, January.

Henriques, I. and Sadorsky, P. (2011). The Effect of Oil Price Volatility on Strategic Investment. Energy Economics, 33(1), January, 79-87.

Miyakoshi, T. (2005). Asian Emerging Markets and News. Paper presented at the 2002 seminar of Waseda University, the 2002 autumn conference of Japan Society of Monetary Economics, the 2002 conference of the East Asian Economic Association, and the 2003 Pacific Rim Conference.

Olowe, R.A. (2009. Modeling Naira/Dollar Exchange Rate Volatility: Application of GARCH and Asymmetric Models. International Review of Business Research Papers, 5(3), April: 377-398.

Oriakhi, D.E & Iyoha D. O. (2013). Oil Price Volatility and its Consequences on the Growth of The Nigerian Economy: An Examination (1970-2010). Asian Economic and Financial Review, 3(5), 683-695.

Sharma, S. S. and Narayan, P. K. (2012). Investment and Oil Price Volatility. Econoimics Bulletin, 32(2), 1428-1433.

Usman, M., Nawaz, R. M. and Qayyum, M. (2011). Impact of Oil Price Volatility on Macroeconomic Variables (A Case Study of Pakistan). Journal of Asian Business Strategy, 1(2), 16-21..

Volchkova, N. (2015). Changes in Oil Price and Economic Impacts. Retrieved from http://freepolicybriefs.org/2015/12/07/changes-in-oil-price-and-economic-impacts-2/on 30 March 2017

Wadud, I. M. and Ahmed, H. J. A. (2016). Oil Price Volatility, Investment and Sectoral Responses: The Thai Experience. Journal of Developing Areas, 50(3), 357-379.

Wiafe, E. A. Barnor, C. B. and Quaido, C. (2014). Oil Price Shock and Domestic Investment in Ghana. MPRA Paper No.60777, December.

Journal Information

Metrics

All Time Past Year Past 30 Days
Abstract Views 0 0 0
Full Text Views 49 49 38
PDF Downloads 38 38 29