Oil price volatility and economic development: Stylized evidence in Nigeria

Abstract

The research presented in this study, investigates chiefly the causal relationship between oil prices and key macroeconomic variables in Nigeria in a multivariate framework using times series data from 1980 to 2010. To examine whether there is prediction between oil prices and macroeconomic indicators (inflation, interest rate, exchange rate and real gross domestic product) as well as the impact of oil prices on the applied macroeconomic indicators, this research adopted the Granger causality and the ordinary least squares respectively. After ensuring data stationarity, the results suggest that in the short run, changes in the gross domestic product (GDP) is not influenced by oil price volatility, nor do we find evidence of influence on key macroeconomic variables. Again the findings indicate that there is a positive but insignificant relationship between oil price and the Nigerian Gross domestic product. Overall oil prices have no significant impact on real GDP and exchange rate in Nigeria. The result suggests that Nigeria has a special case of the Dutch Disease, where a country's seeming good forutne proves ultimately detrimental to its economy.