Oil Export Earnings, Exchange Rate Variability, and Economic Growth in Nigeria

This paper investigates oil revenue and exchange rate volatility and as well as their impacts on Nigerian economic growth which is examined from 1980 – 2010. Exchange rate volatility was captured using standard deviationof monthly nominal effective exchange rate. During this period, Nigeria recorded high levels of volatility (in oil receipt and effective exchange rate) as can be seen from the Autoregressive Conditional Heteroskedasticity (ARCH) and the General Autoregressive Conditional Heteroskedasticity (GARCH) - ARCH/GARCH results. Also, the Augmented Dickey-Fuller test indicate that some of the variables exhibit unit root, this research further makes use of vector autoregressive process (VAR) using the variance decomposition of Choleski factorisation in which forecast error variance of some systems of equations has innovations which is credited to each variable and the method of impulse response function. The authors established that exchange rate in Nigeria due to its volatility causes revenue volatility from oil and this has a daring consequence on Nigeria's economic growth (being a monoculture economy). They found that change in oil price index, change in interest rate, proportion of export to GDP and exchange rate variability bears some negative impacts on change in the rate of output growth in Nigeria. Moreover, government size and exchange rate variability created some disturbances to change in the rate of output, these changes were not as substantial as those created by change in interest rate, ratio of oil export to GDP and change in oil price index. In addition, change in output responds negatively for some time horizon to one-standard deviation shocks in change in oil price index, change in interest rate, oil export to GDP and exchange rate variability. The authors recommend economic diversification and sound macroeconomic management among others.