Asymmetric Effect of Oil Price Volatility, Oil Price Revenue, and Some Other Macro-Economic Variables on Economic Growth
- November 9, 2020
- Posted by: RSIS Team
- Categories: Economics, IJRISS
International Journal of Research and Innovation in Social Science (IJRISS) | Volume IV, Issue X, October 2020 | ISSN 2454–6186
ALIMI Akindapo Abass, UGO Egbuta and SEUN Adegorite
WorldQuant University, USA
Abstract: Globally, aside from the economic effect, the process of price fluctuation and high uncertainty associated with crude oil inclusively affects the gross domestic product, import bills, and inflation. The study evaluated the asymmetric effect of oil price volatility, oil price revenue, and some other macro-economic variables on economic growth. Secondary data were used for this study and were sourced from the Central Bank of Nigeria (CBN) Statistical Bulletins and World Development Indicator from 1983 to 2019. The data were analyzed using descriptive (Graphs and tables) and inferential statistics (Ordinary least square, Co-integration test, Vector Error Correction Model, and Granger Causality Test) to evaluate the study hypothesis.
The result of regression indicated that the calculated value related to probability (F (5, 31) = 175.60, Prob> F = 0.0000) and its adjusted value of R2 (0.9604), showed that oil price revenue (β =0.640034), foreign exchange (β =0.9539687) and oil price volatility (β =0.7080817) have a positive effect on Gross Domestic Product (GDP) at p≤0.05. Moreover, the granger causality test indicated that there is independence or no causation among gross domestic product (LNGDP) and interest rate (LNINTR), oil price revenue (LNOPR), gross domestic product (LNGDP) oil price volatility (LNOPV), going by the p-values which are greater than 0.05 or 5% at a lag difference of 2. Finally, t-statistics, f-statistic, and chi-square of 2.107337, 4.440867, and 4.440867 with the probability value of 0.05, 0.05, and 0.0351 indicated that F-statistic probability value implies there is long-run asymmetry among the variables
In conclusion, the finding of the analysis, therefore, showed a statistically asymmetric effect of oil price volatility, foreign exchange rate, and the interest rate on Nigeria’s economic activities. This implies that macro-economic indicators performance such as interest rate, foreign exchange rate, and oil prices influenced economic growth and found out that increases in oil prices may depress the supply of other goods by raising their cost of production because prices of oil have a direct impact on the prices of goods produced from petroleum products. Based on the above result, it is recommended that the policymakers should reduce the pressure on exchange rates and interest rates by diversifying the economy to reduce the pressure on oil, which in turn promotes economic growth. Also, there should be a review of monetary policy by the Central Bank of Nigeria (CBN) with the use of a contractionary monetary policy that would help to reduce the inflation rate.
Keywords: Oil price, volatility, oil price revenue, economic growth, macroeconomic variables, Gross Domestic Product, foreign exchange rate, co-integration.
