The Relationship Between Crude Oil Prices and Economic Performance in Nigeria: Evidence from Recent Trends (1990 to 2023)
Abstract
This study examines the impact of crude oil prices on economic growth in Nigeria from 1990 to 2023, employing the Autoregressive Distributed Lag (ARDL) framework and Granger causality analysis. Unlike previous studies that assume symmetric relationships, this research explicitly tests for structural breaks and incorporates insights from Dutch Disease theory and the Resource Curse hypothesis. Preliminary diagnostic tests, including Augmented Dickey-Fuller (ADF) unit root tests with structural break options, established that the dataset is suitable for econometric modeling. The ARDL bounds test confirmed the existence of a long-run equilibrium relationship between crude oil prices and key macroeconomic indicators. Empirical findings reveal that crude oil prices have a statistically significant positive impact on both real GDP and government expenditure in the long run, underscoring oil's central role in Nigeria's fiscal and economic performance. However, stability tests reveal that this relationship experienced a structural break around 2014, coinciding with the global oil price crash, suggesting that the oil-growth nexus weakened in the post-2014 period. Granger causality results from a VECM framework indicate a unidirectional relationship from crude oil prices to GDP, implying that fluctuations in global oil markets significantly predict Nigeria's economic trajectory, while domestic growth does not influence oil prices. The study concludes that Nigeria's over-reliance on oil revenue exposes the economy to external shocks and volatility in global oil prices. It recommends that diversification efforts target specific sectors where Nigeria holds comparative advantage, that oil revenues be invested through a sovereign wealth fund with clear rules for countercyclical spending, and that monetary authorities maintain exchange rate stability to insulate non-oil tradable sectors from Dutch Disease effects.