The Nexus in the Volatility in the Price of Crude Oil on Inclusive Growth in Nigeria (1986 - 2016)

Abstract

Nigeria is a mono-product economy, where the main export commodity is crude

oil, changes in crude oil prices has effects for the Nigerian economy and, in

particular, inclusive growth proxied by per capita GDP. The latter is mostly

important due to the double dilemma of being an oil exporting and oil-importing

country, a situation that emerged in the last decade. The study examined the effects

of oil price, per capita GDP, real exchange rate, inflation, unemployment and

interest rate on inclusive growth in Nigeria using yearly data from the year 1986

to 2016. The theoretical framework of this study is based on the standard growth

theories focus on primary inputs such as; Capital, labor & land;The

Linear/Symmetric relationship theory of growth; The Renaissance growth theory/

model and The Asymmetry-in-effects theory of economic growth. The models are

used to estimate the relationship between oil price changes and inclusive growth.

Relevant descriptive and econometric analyses were employed. The econometric

tests used include the unit root tests, Johansen co-integration technique and the

Vector Error Correction Model (VECM) when the unit root tests were carried out;

threeof the variables were stationary at second differencewhile the other three

were stationary at first difference. The long run relationship among the variables

was determined using the Johansen Co-integration technique while the vector

error correction mechanism was used to examine the speed of adjustment of the

variables from the short run dynamics to the long run. It was observed that a

proportionate change in oil price volatility leads to a more than proportionate

change in exchange rate volatility in Nigeria by 2.5%. I therefore recommend that

the Nigeria government should broaden her economy from the Oil sector to other

sectors of the economy so that Crude oil will no longer be the backbone of the

economy and volatility in crude oil price will not affectinclusive growth proxied

with per capita GDP significantly in Nigeria.

      

Contents

DECLARATION.....................................................................................................................................ii

CERTIFICATION..................................................................................................................................iii

DEDICATION........................................................................................................................................iv

ACKNOWLEDGEMENT.......................................................................................................................v

Abstract..................................................................................................................................................vii

CHAPTER ONE......................................................................................................................................1

INTRODUCTION...................................................................................................................................1

1.0 BACKGOUND OF THE STUDY...............................................................................................1

1.1 STATEMENT OF THE PROBLEM...........................................................................................3

1.2 RESEARCH QUESTIONS.........................................................................................................4

1.3 OBJECTIVES OF THE STUDY.................................................................................................4

1.4 RESEARCH HYPOTHESIS.......................................................................................................4

1.5 SIGNIFICANCE OF STUDY.....................................................................................................5

1.6 SCOPE OF THE STUDY............................................................................................................5

1.7 ORGANISATION OF THE STUDY................................................................................................6

CHAPTER TWO.....................................................................................................................................7

LITERATURE REVIEW........................................................................................................................7

2.1 THEORITICAL FRAMEWORK......................................................................................................7

2.2 THEORITICAL LITERATURE......................................................................................................10

2.3 EMPIRICAL LITERATURE..........................................................................................................12

2.4 CONCEPTUAL LITERARURE.....................................................................................................13

2.5 FOR GROWTH TO BE INCLUSIVE.......................................................................................16

viii

2.5.1 KEYNESIAN STRUCTURALIST GROWTH MODEL.......................................................19

2.6 AN OVER VIEW OF HISTORY OF OIL PRICES VOLATILITY..........................................22

2.6.1 THE FIRST OIL PRICE SHOCKS (1861-1864)...................................................................23

2.6.2 INDUSTRIAL EVOLUTION (1865-1899):..........................................................................24

2.6.3 POWER AND TRANSPORTATION (1900-1945):.....................................................................25

2.6.5 Post War Dislocations (1947-1948):.............................................................................................26

2.6.6 Supply Disruptions and the Korean Conflict (1952-1953):...........................................................27

2.6.7 SUEZ CRISIS (1956-1957):.........................................................................................................27

2.6.7 THE AGE OF 0PEC (1973-1996):...............................................................................................28

2.7 BRIEF HISTORY OF OIL IN NIGERIA........................................................................................29

2.8 THE CURRENT HISTORY OF GLOBAL VOLATILITY OF CRUDE OIL PRICES (A NEW

INDUSTRIAL AGE):............................................................................................................................32

2.9 WHAT ARE THE CAUSES OF THE VOLATILITY?..................................................................32

2.9.1 CHANGE IN PACIFIC CURRENT AND ADVERSE WEATHER CONDITION:....................33

2.9.2 INTERNATIONAL POLITICS:...................................................................................................33

2.9.3 NEW INVENTION AND TECNOLOGY:...................................................................................34

2.9.4 INFLUX OF SHALE OIL ACCOUNT FOR ABOUT 50% SUPPLIED (NEW NONCONVENTIONAL

PRODUCTION OF OIL):.....................................................................................34

2.9.5 U.S. DOLLAR APPRECIATION................................................................................................35

2.9.6 RECCEEDING GEOPOLITICAL CONCERN’S ABOUT SUPPLY DISRUPTIONS:...............35

CHAPTER THREE...............................................................................................................................37

RESEARCH METHODOLOGY...........................................................................................................37

3.0 INTRODUCTION....................................................................................................................37

3.2 MODEL SPECIFICATION.......................................................................................................38

3.3 METHODOLOGY....................................................................................................................39

3.4 MODEL SPECIFICATION.............................................................................................................44

3.5 RESEARCH METHOD.................................................................................46

CHAPTER FOUR.................................................................................................................................51

DATA PRESENTATION, ANALYSIS AND INTERPRETATION....................................................51

4.0 INRODUCTION.............................................................................................................................51

4. 2. ECONOMETRIC ANALYSIS......................................................................................................51

4.2 .1TREND AND DESCRIPTIVE ANALYSIS.................................................................................52

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Fig: 4.2.2 Trend Analysis of Price Of crude Oil...................................................................................52

Fig: 4.2.3 Trend Analysis of Unemployment Rate................................................................................55

Fig: 4.2.4 Trend Analysis of Real Exchange Rate.................................................................................57

Fig: 4.2.5 Trend Analysis of Inclusive Growth as Proxy by Gross Domestic Product Per Capita.........59

Fig: 4.2.6 Trend Analysis of Real Interest Rate.....................................................................................61

Fig: 4.2.7 Trend Analysis of Inflation....................................................................................................62

TABLE: 4.1...........................................................................................................................................64

4.2.2 Result Interpretation of Unit Root Test.........................................................................................65

Table: 1..................................................................................................................................................67

Normalized cointegrating coefficients...................................................................................................67

4.3 THE VECTOR ERROR CORRECTION MODEL.........................................................................67

4.4 Findings and Economic interpretation.............................................................................................68

4.5 Conclusion.......................................................................................................................................70

CHAPTER FIVE...................................................................................................................................72

SUMMARY, RECOMMENDATION AND CONCLUSION...............................................................72

5.1 SUMMARY....................................................................................................................................72

5.2 POLICY RECOMMENDADATIONS............................................................................................72

5.3 LIMITATIONS TO THE STUDY..................................................................................................73

5.4 SUGGESTIONS FOR FURTHER STUDY....................................................................................74

5.5 CONCLUSION...............................................................................................................................74

REFERENCES......................................................................................................................................75

APPENDIX...........................................................................................................................................78