IDEAS home Printed from https://ideas.repec.org/a/cvv/journ5/v7y2020i2p69-80.html

Oil price shock and macroeconomic aggregates: Empirical evidence from Nigeria using the structural vector autoregressive (SVAR) approach

Author

Listed:
  • Ahmed Adefemi ADESETE
  • Fatima Abiodun BANKOLE

    (Nigeria)

Abstract

The continual fluctuation in oil price has continued to be a source of concern for economists and policymakers, both in Nigeria and abroad, given its sudden implications on existing and future policy plans as well as on some macroeconomic indicators. The Nigerian economy is an oil-dependent one and has about 90% of its export earnings come from oil and so is highly vulnerable to the sudden changes in oil prices either positive or negative. This paper evaluates the relationship between this unanticipated changes in oil price and some selected macroeconomic aggregates in Nigeria using the structural vector autoregressive (SVAR) methodology while employing its impulse response functions, to further explore the impact of oil price shock on the Nigerian economy over different time period. The SVAR result shows that oil price shock has a negative impact on all of the selected macroeconomic indicators such as economic growth, import, investment, inflation, and the exchange rate except export in the long term. Furthermore, the impulse response functions shows that the response of all selected macroeconomic indicators in this study to oil price shock were mixed but mostly negative over a time period of 12 months. The ADF unit root test confirmed that all series were stationary at I(1) only except inflation rate which was I(0) and I(1). The autocorrelation LM and White heteroscedasticity test confirms the non-rejection of the null hypothesis concluding that the residuals from the SVAR model were not serially correlated and homoscedastic. Based on the findings the study recommended the diversification of the economy to other key sectors such as agriculture and mining to help reduce the over-reliance on crude oil earnings also, measures should be taken to lower the cost of production for crude oil per barrel to minimize the impact of oil price shock on macroeconomic indicators.

Suggested Citation

  • Ahmed Adefemi ADESETE & Fatima Abiodun BANKOLE, 2020. "Oil price shock and macroeconomic aggregates: Empirical evidence from Nigeria using the structural vector autoregressive (SVAR) approach," Journal of Economics Library, EconSciences Journals, vol. 7(2), pages 69-80, June.
    • Handle: RePEc:cvv:journ5:v:7:y:2020:i:2:p:69-80
    as

    Download full text from publisher

    File URL: https://journals.econsciences.com/index.php/JEL/article/view/2062/2079
    Download Restriction: no
    File URL: https://journals.econsciences.com/index.php/JEL/article/view/2062
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Chuku, Chuku & Effiong, Ekpeno & Sam, Ndifreke, 2010. "Oil price distortions and their short- and long-run impacts on the Nigerian economy," MPRA Paper 24434, University Library of Munich, Germany.
    2. Feride Ozturk, 2015. "Oil Price Shocks-Macro Economy Relationship in Turkey," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(5), pages 846-857.
    3. Feride Ozturk, 2015. "Oil Price Shocks-Macro Economy Relationship in Turkey," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(5), pages 846-857, May.
    4. Aliyu, Shehu Usman Rano, 2009. "Oil Price Shocks and the Macroeconomy of Nigeria: A Non-linear Approach," MPRA Paper 18726, University Library of Munich, Germany, revised 16 Nov 2009.
    5. Oluwatosin Adeniyi & Abimbola Oyinlola & Olusegun Omisakin, 2011. "Oil price shocks and economic growth in Nigeria: are thresholds important?," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 35(4), pages 308-333, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kanu Success Ikechi & Nwadiubu Anthony, 2020. "Global Oil Price Shocks and Effects on Economic Growth: An Econometric Investigation of Nigeria," International Journal of Innovation and Economic Development, Inovatus Services Ltd., vol. 6(4), pages 7-26, October.
    2. T.P. Ghosh, 2019. "Economic Diversification and the State of Oil Dependency of UAE Stock Returns-An Analysis of ADX Indices 2014-2019," Accounting and Finance Research, Sciedu Press, vol. 8(4), pages 199-199, November.
    3. Riman, Hodo B. & Akpan, Emmanuel S. & Offiong, Amenawo I, 2013. "Asymetric Effect of Oil Price Shocks on Exchange Rate Volatility and Domestic Investment in Nigeria," MPRA Paper 53282, University Library of Munich, Germany, revised 21 Aug 2013.
    4. Aissa Djedaiet & Hicham Ayad, "undated". "The double whammy of COVID-19 and oil price collapse: Spillover effects on inflation and exchange rates," Review of Socio - Economic Perspectives 202206, Reviewsep.
    5. Osaretin Kayode Omoregie & Sodik Adejonwo Olofin, 2020. "Corporate Performance in Nigeria: The Effect of Oil Price and Exchange Rate Fluctuations," International Journal of Economics and Financial Issues, Econjournals, vol. 10(1), pages 170-179.
    6. Preeti Sharma & Avinash K. Shrivastava, 2024. "Economic Activities and Oil Price Shocks in Indian Outlook: Direction of Causality and Testing Cointegration," Global Business Review, International Management Institute, vol. 25(3), pages 771-790, June.
    7. Motunrayo O AKINSOLA & NM ODHIAMBO, 2020. "Oil Price And Economic Growth Of Oil-Importing Countries: A Review Of International Literature," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 20(1), pages 129-140.
    8. Adilson de Oliveira & Susan Schommer & Ledson L. G. da Rosa, 2023. "Oil price volatility: impacts in the Brazilian economy," Economics Bulletin, AccessEcon, vol. 43(1), pages 429-440.
    9. Usama Almulali & Che Normee Binti Che Sab, 2013. "Exploring the impact of oil revenues on OPEC members' macroeconomy," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 37(4), pages 416-428, December.
    10. Ngozi G. Emenogu & Monday Osagie Adenomon & Nwaze Obini Nweze, 2020. "On the volatility of daily stock returns of Total Nigeria Plc: evidence from GARCH models, value-at-risk and backtesting," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-25, December.
    11. Neelufer Aslam & Swati Shastri, 2019. "Relationship Between Oil Revenues and Gross Domestic Product of Oman: An Empirical Investigation," International Journal of Economics and Financial Issues, Econjournals, vol. 9(6), pages 195-201.
    12. Samuel, Sunday Eneojo & Kouhy, Reza, 2025. "Paradox of oil revenue allocation and utilisation in resource-rich countries: The case of Nigeria," Resources Policy, Elsevier, vol. 111(C).
    13. BESSO, Christophe Raoul & FEUBI PAMEN, Eric Patrick, 2016. "Oil price shock and economic growth : Experience of CEMAC countries," MPRA Paper 76034, University Library of Munich, Germany, revised 03 Jan 2017.
    14. Agya Atabani Adi & Udoh Friday, 2017. "The Impact Of Oil Shock On Nigeria Economy: Asymmetry Effect Analysis," Journal of Social and Economic Statistics, Bucharest University of Economic Studies, vol. 6(1), pages 60-74, JULY.
    15. Dipesh Karki & Hari Gopal Risal, 2019. "Asymmetric Impact of Oil Price on Inflation: Evidence from Nepal," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 31(1), pages 21-46, April.
    16. Chung Tin Fah & Ong Jie Shi, 2017. "Plunging Oil Prices Impact Malaysia’S And Indonesia’S Economy," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 5(1), pages 49-68.
    17. Zahid Muhammad & Hassan Suleiman & Reza Kouhy, 2011. "Exploring oil price – exchange rate nexus for Nigeria," FIW Working Paper series 071, FIW.
    18. Troug, Haytem & Murray, Matt, 2015. "The Effects of Asymmetric Shocks in Oil Prices on the Performance of the Libyan Economy," MPRA Paper 68705, University Library of Munich, Germany.
    19. Babalola Adedayo Emmanuel* & Akindele Olawale Olamide & Rotimi Olufemi Henry, 2018. "An Empirical Investigation into the Effects of Crude Oil Price on Government Revenue in Nigeria," Sumerianz Journal of Economics and Finance, Sumerianz Publication, vol. 1(1), pages 22-30, 06-2018.
    20. Muhammad Arshad Khan & Ayaz Ahmed, 2011. "Macroeconomic Effects of Global Food and Oil Price Shocks to the Pakistan Economy: A Structural Vector Autoregressive (SVAR) Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 50(4), pages 491-511.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cvv:journ5:v:7:y:2020:i:2:p:69-80. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bilal KARGI (email available below). General contact details of provider: https://journals.econsciences.com/index.php/JEL .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.