Structural Effect of Oil Price Shocks and Food Importation on Economic Growth in Nigeria Using SVAR Model

Sani Abdulrahman Bala(1*), Ali Alhassan(2),


(1) Department of Accounting Usmanu Danfodio University Sokoto
(2) Department of Economics, Usmanu Danfodiyo University Sokoto
(*) Corresponding Author

Abstract

The study empirically examines the effect of oil price shocks and food importation on economic growth in Nigeria along with two control variables i.e. exchange rate and inflation using Structural Vector Autoregressive (SVAR) Model covering the period of 1970 to 2015. The result from SVAR short-run pattern and long-run pattern indicate that GDP has recently been affected by all variables in the model. More also, it indicates a significant permanent effect of crude oil price shocks and food imports on economic growth, while the result further indicates a transitory effect of exchange rate and inflation on economic growth. For significant t-value of the long run SVAR estimate matrix, confirms long effect of crude oil price shocks, food imports, exchange rate and inflation on economic growth in Nigeria. The results from structural response indicate that crude oil have high positive impact on GDP at the initial period and negative impact at the end of the period. Furthermore, food imports have high negative effect on GDP, while GDP response negatively to exchange rate and inflation rate from the period. The result from the structural decompositions indicates that crude oil price and food imports and exchange rate contribute more variability to GDP, while inflation contribute less variability in explaining the variation of GDP in Nigeria. The study recommends that government should come up with a policy that will focus on alternative sources of government revenue by investing more in real sectors especially agriculture in order to withstand vicissitudes of oil shocks in future.

Keywords

Crude oil price, food imports, exchange rate, Structure Vector Autoregressive

References

Amisano G, Giannini C (1997). Topics in Structural VAR Econometrics. Springer-Verlag, Berlin, 2nd edition.

Ani, W., Ugwunta, D., Inyiama, O., and Ike-Ekweremadu, N. (2014). Oil Price Volatility and Economic Development: Stylized Evidence in Nigeria. Journal of Economics and International Finance Vol. 6(6). 524-538

Augustine C. O. (2015) Exchange Rate Fluctuations, Oil Prices and Economic Performance: Empirical Evidence from Nigeria International Journal of Energy Economics and Policy, 2015, 5(2), 502-506. http: www.econjournals.com

Bernhard P. and Kronberg T. (2008) VAR, SVAR and SVEC Models: Implementation Within R Package Vars http://www.pfaffikus.de

Breitung J. Bruggemann R. and Lutkepohl H. (2004). Structural Vector Autoregressive Modeling and Impulse Responses. In H Lutkepohl, M Kratzig (eds.), Applied Time Series Econometrics," Cambridge University Press, Cambridge.

CBN, (2015). Central Bank of Nigeria Statistical Bulletin. Edition.

Ebele, E. (2015). Oil Price Volatility and Economic Growth in Nigeria: An Empirical Investigation. European Journal of Humanities and Social Sciences Vol. 34, No.1, Pp 1901-1912

Eli-Hecksher and Bertil Ohlin (1919). The effect of foreign trade on the distribution of income. Ekonomisk Tidskrift, 21, 497– 512

Emmanuel O. (2015). International Oil Prices and Exchange Rate in Nigeria: A Causality Analysis. International Journal of Academic Research in Economics and Management Sciences 2015, Vol. 4, No. 3 pp 11-22 http://dx.doi.org/10.6007/IJAREMS/v4-i3/1798

Energy Information Administration, EIA, (2016), World Petroleum Consumption, Annual Energy Review.

Hamilton, J.D. (1983). Oil and the macroeconomy since World War II. Journal of Political Economy 91, pp. 228–248.

Hooker, K. A. (1994) "What Happened to the Oil Price-Macroeconomy”, Journal of Econometrics 31(3): 307-27.

Ifeanyi O. N., Ayenajeh M. E. (2016). Impact of Crude Oil Price Volatility on Economic Growth in Nigeria (1980 -2014), Journal of Business and Management. Volume 18, Issue 6 (I ), PP 10-19 www.iosrjournals.org

Igberaese, T. (2013). The effect of oil dependency on Nigeria’s economic growth. An unpublished M.Sc thesis from International Institute of Social Sciences, The Netherlands

Khuram S., Liu, H, Zahra I., Javed A. S. & Amna N. (2015). Exchange Rate Volatility and Oil Prices Shocks. International Journal of Academic Research in Business and Social Sciences, , Vol. 5, No. 1

Lee, J., Strazicich, M., (2004), “Minimum LM Unit Root Test with One Structural Breaks”, Apalachian State University Working Papers, No:04-17, pp. 1-17.

Lee, K., S. Ni, and R. Ratti, (1995) “Oil shocks and the Macroeconomy: The role of price variability,” The Energy Journal, 16, 39 56.

Lutkepohl H (2006). New Introduction to Multiple Time Series Analysis. Springer Verlag, New York.

Lutkepohl H, Kratzig M (2004). Applied Time Series Econometrics. Cambridge UniversityPress, Cambridge.

Mork, K A., (1989) “Oil and the Macroeconomy when prices go up and down: An extension of Hamilton's results”, Journal of Political Economy, 91, 740-744.

Muhammad L. A. and Atte, O. A. (2006). An Analysis of Agricultural Production in Nigeria. African Journal of General Agriculture. Vol.2(1) pp.159-168 http://www.asopah.org

Muritala, T., Taiwo, A., & Olowookere, D. (2012). Crude Oil Price, Stock Price and Some Selected Macroeconomic Indicators: Implications on the Growth of Nigeria Economy. Research Journal of Finance and Accounting Vol. 3(2)

Nirodha, D. S., Jaime, M., and Jeff, J. (2013). Trade Liberalization Effects on Agricultural Production Growth: The Case of Sri Lanka Selected Paper prepared for Presentation at the Southern Agricultural Economics Association Annual (SAEA) Meeting, Orlando, Florida, 2-5 February 2013. Pp 1-23

Oluwaseun G., Adeyemi, O., and Evans, O. (2013). Agricultural Exports and Economic Growth in Nigeria (1980 – 2010) Journal of Economics and Sustainable Development Vol.4 (16) pp 111-114. ISSN 2222-2855 www.iiste.org

OPEC (2013), Annual Statistical Bulletin, Organization of the Petroleum Exporting Countries, Austria.

Oriakhi DE, Osaze D (2013). “Oil Price Volatility and Its Consequences on the Growth of the Nigerian Economy: An Examination (1970-2010)”, Asian Journal of Economic and Finance. Vol. 3(5):683-702

Oriavwote. V. and Eriemo, N. (2012). Oil Prices and the Real Exchange Rate in Nigeria. International Journal of Economics and Finance Vol. 4 (6)

Perron, P. (1997). Further Evidence on Breaking Trend Functions in Macroeconomic Variables. Journal of Econometrics. 80: 375-385.

Sascha, B., Maurizio, H. & Livio, S. (2015). Plummeting Oil Prices, Depreciating Oil Currencies? VOX CEPR’s policy portal. Retrieved June 2, 2015 from http://www.voxeu.org/article/oil-prices-and-value-oil-currencies

Sims, C.A. Stock, J., and Watson, M. (1990). Inference in Linear Time Series Models with some Unit Roots. Econometrica 58, 161–82.

Steven, K. (2008) “Oil Price Volatility, Economic Impacts, and Financial Management: Risk-Management Experience, Best Practice, and Outlook”-Washington D.C. March 10 - 11, 2008 Tests on Nigeria. Journal of Economic and Social Research, 15(1): 1-30.

Taiwo, A. and Olumuyiwa T. A. (2015). The Impact of Volatility of Oil Price on the Economic Growth in Sub-Saharan Africa. British Journal of Economics, Management & Trade 5(3): 338-349, www.sciencedomain.org

Umar, G. and Abdulhakeem, K. (2010). Oil Price Shocks and Nigerian Economy: A Vector Autoregressive (VAR) Model. International Journal of Business and Management Vol. 5(8) 231-248

UNCTAD, (2013). Global Investment Trends Monitor: Global FDI Recovery Derails. United Nations Conference for Trade and Development. United Nations Publications UNCTAD/TDR/2013. New York and Geneva: United Nations.

Yusuf, M. (2015). An Analysis of the Impact of Oil Price Shocks on the Growth of the Nigerian Economy. African journal of business management Vol. 9(3)

Zeileis A, Leisch F, Hornik K, and Kleiber C (2002). Structural Change: An R Package for Testing for Structural Change in Linear Regression Models." Journal of Statistical Software, 7(2), 1-38. URL http://www.jstatsoft.org/v07/i02/.

Zivot, E., and Andrews D. W. K., (1992), “Further Evidence on The Great Grash, The Oil- Price Shock, and The Unit-Root Hypothesis”, Journal of Business and Economic Statistics, July 1992, Vol. 10, No: 3. Pp 251-270

Article Metrics

Abstract : 200 times

DOI: http://dx.doi.org/10.15294/ibarj.v2i1.30

Refbacks

  • There are currently no refbacks.




Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License. web
counter View My Stats