Broni-Bediako E, Onyije IJ and Unwene KK
Nigeria’s dependence on oil revenue has been a cause for concern, especially as oil is an internationally traded commodity whose price is subject to unpredictable changes. The volatility in price of oil has various implications for both oil importing and exporting countries alike. However, oil export revenue dependent nations are more prone to the consequences, especially during periods of negative volatility. Nigeria’s economy is highly dependent on crude oil export revenue, hence, fluctuations in oil prices affects Nigeria’s macroeconomics. This study empirically investigated the economic effects of oil price volatility on Nigeria’s economy using some macroeconomic indicators such as gross domestic product (GDP), exchange rate (EXR), interest rate (INR), Foreign Direct Investment (FDI), and balance of payment (BOP). Ordinary Least Square (OLS) estimation was used to assess the impact of oil price fluctuation (independent variable) on the macroeconomic indicators listed above (dependent variables). The result of the study shows that the macroeconomic variables respond to changes in the price of oil (volatility), although at varying extent/degrees. This result underscores the contribution of oil as the major foreign revenue earner for the country. Based on the result of the study, it is concluded that oil price volatility is linearly related to the macroeconomic variables investigated, and that price volatility has an effect on interest rate, balance of payment, gross domestic product and foreign direct investment. Consequently, it is recommended that Nigerian economy should be diversified to guarantee non-dependence on oil revenue as the major source of foreign income earner, and that investment in local production to encourage export, while discouraging over importation is imperative.
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