Empirical Analysis of the Nexus between Crude Oil Price Volatility and Selected Economic Sectors in Nigeria
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Abstract
Fluctuations in the global price of crude oil has become a major concern for many economies who depend majorly on oil export for foreign exchange earnings. This study therefore investigates the impact of crude oil price volatility on some selected economic sectors (transport, agricultural and manufacturing sectors) in Nigeria from 1981q1 to 2015q4. Adopting the exponential generalized autoregressive heteroskedasticity (EGARCH) model, the empirical result shows that a certain period of low volatility is followed by another period of low volatility. Meanwhile, a period of high volatility is followed by another period of high volatility. Crude oil price has a negative impact and is statistically significant to transportation sector, manufacturing output, and agricultural sector respectively. Based on the findings, the study recommends that the government should reform the economy and diversify her export revenue base as a means of minimizing reliance on crude oil and petroleum product. Some of these reforms include fiscal prudence, reform in budgetary operations, export diversification, revival of non-oil sectors, which will further shield the economy from the impact of oil price fluctuations. The study further recommends that policy makers of net oil exporting countries like Nigeria should give support to the restructuring of their economies in such a way that their non-export will boost their domestic economy.
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