Impact of Oil Price Shock and Exchange Rate Volatility on Economic Growth in Nigeria: An Empirical Investigation

MPRA Paper from University Library of Munich, Germany

Abstract: This paper seeks to assess the impact of oil price shock and real exchange rate volatility on real economic growth in Nigeria on the basis of quarterly data from 1986Q1 to 2007Q4. The empirical analysis starts by analyzing the time series properties of the data which is followed by examining the nature of causality among the variables. Furthermore, the Johansen VAR-based cointegration technique is applied to examine the sensitivity of real economic growth to changes in oil prices and real exchange rate volatility in the long-run while the short run dynamics was checked using a vector error correction model. Results from ADF and PP tests show evidence of unit root in the data and Granger pairwise causality test revealed unidirectional causality from oil prices to real GDP and bidirectional causality from real exchange rate to real GDP and vice versa. Findings further show that oil price shock and appreciation in the level of exchange rate exert positive impact on real economic growth in Nigeria. The paper recommends greater diversification of the economy through investment in key productive sectors of the economy to guard against the vicissitude of oil price shock and exchange rate volatility.

Keywords: Cointegration; Granger Causality; Oil price shock; Exchange Rate Volatility; VECM (search for similar items in EconPapers)
JEL-codes: F40 F41 F43 (search for similar items in EconPapers)
Date: 2009-05-03, Revised 2009-06-10
New Economics Papers: this item is included in nep-afr, nep-ene and nep-ifn
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Published in Research Journal of Internatıonal Studıes Issue 11.Issue(2009): pp. 4-15

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:16319

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