Oil Prices and Economic Activity in Nigeria: An Asymmetric Cointegration and Threshold Analysis
Keywords:
Oil Price; Economic Growth; Nonlinear Autoregressive Distributed Lag (NARDL); Threshold Regression; Asymmetric CointegrationAbstract
Oil price fluctuation greatly affects the economy of oil producing net-exporting small open economies of developing countries. This study investigates the nonlinear relationship between oil price volatility and economic growth in Nigeria, covering the period 1981 to 2019. The nonlinear autoregressive distributed lag (NARDL) model is adopted to establish the asymmetric cointegration status of oil price volatility and GDP growth. The switching point between the variables is estimated using the threshold regression approach. The results from the NARDL analysis reveal that the relationship between oil price volatility and economic growth is cointegrated in the long run and has an asymmetrical relationship. Furthermore, the threshold regression investigation indicates that the switching point for the oil price in the relationship with economic growth is US$48.263 per barrel. Hence, whenever oil price falls below the threshold, there is a negative effect on the country’s economic growth. Therefore, the study recommends that the government take advantage of oil export earnings and make some savings whenever oil price goes above the threshold. The savings can be used to assist in developing the other sources of foreign exchange earnings and sustain the country’s development effort.
References
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Khalid M. K. (2019). The Dynamic Links between Oil Prices and Economic Growth: Recent Evidence from Nonlinear Cointegration Analysis for the ASEAN-5 Countries, Emerging Markets Finance and Trade, DOI: 10.1080/1540496X.2019.1677463
Lardic, S. & Mignon V. (2008). Oil Prices and Economic Activity: An Asymmetric Cointegration Approach, Energy Economics, 30 (847 – 855). DOI: 10.1016/j.eneco.2006.10.010
Malik, A. (2008). Crude Oil Price, Monetary Policy and Output: The Case of Pakistan, The Pakistan Development Review, 47, (4), 425-436
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Nathaniel, S. P., Kursat, Y. & Bekun, F.V. (2021). Assessing the environmental sustainability corridor: Linking natural resources, renewable energy, human capital, and ecological footprint in BRICS. Resources Policy, Vol. 70, 101924. https://doi.org/10.1016/j.resourpol.2020.101924
Nzimande, N. & Msomi, S. (2016). Oil Price Shocks and Economic Activity: The Asymmetric Cointegration Approach in South Africa, Journal of Economic and Financial Sciences | JEF| October 2016 9(3), pp. 685-695. DOI: 10.4102/jef.v9i3.65
Ogundipe, O., Ojeaga, P. & Ogundipe, A. (2014). Oil Price and Exchange Rate Volatility in Nigeria, Journal of Economics and Finance (IOSR), Volume 5, Issue 4. (Sep.-Oct. 2014), PP 01-09. DOI: DOI: 10.9790/5933-0540109
Okonkwo, I. V. & Mojekwu, K. O. (2018). Crude Oil Price Fluctuations and Nigeria Economic Growth: 1997-2015, International Journal of Research in Business, Economics and Management, Vol.2 Issue 2, March-April.
Olanipekun, I. O. & Alola, A. A. (2020). Crude oil production in the Persian Gulf amidst geopolitical risk, cost of damage and resources rents: Is there asymmetric inference?, Resources Policy, Vol. 69, https://doi.org/10.1016/j.resourpol.2020.101873
Omojolaibi, J. A. (2013). Does Volatility in Crude Oil Price Precipitate Macroeconomic Performance in Nigeria? International Journal of Energy Economics and Policy, Vol. 3, No. 2, pp.143-152 ISSN: 2146-4553.
Osuji, E. (2015). International Oil Prices and Exchange Rate in Nigeria: A Causality Analysis, International Journal of Academic Research in Economics and Management Sciences, 2015, Vol. 4, No. 3. DOI: 10.6007/IJAREMS/v4-i3/1798
Papapetrou, E. (2009). Oil Price Asymmetric Shocks and Economic Activity: The Case of Greece. Austrian Association for Energy Economics, 489, 1-21
Perron, P. & Zhongjun, Q. (2006). Estimating restricted structural change models, Journal of Econometrics, 2006, vol. 134, issue 2, 373-399. DOI: 10.1016/j.jeconom.2005.06.030
Rumbia, W. A., Muthalib, A. A., Abbas, B., Adam, P., Millia, H., Saidi, L. O., & Azis, M. (2020). Crude Oil Prices, Household Spending and Economic Growth in the ASEAN-4 Region: An Analysis of Nonlinear Panel Autoregressive Distributed Lag. International Journal of Energy Economics and Policy, 10(4), 437-442. DOI: 10.32479/ijeep.9293
Schorderet, Y. (2003). Asymmetric cointegration. Department of Econometrics, University of Geneva, Working paper series no. 2003.01
Shin, Y., B. Yu, & Greenwood-Nimmo, M. (2014). Modelling asymmetric cointegration and dynamic multipliers in an ARDL framework. In Festschrift in honor of Peter Schmidt, ed. W. C. Horrace and R. C. Sickles, 281–314. New York: Springer Science & Business Media. DOI: 10.2139/ssrn.1807745
Zhang, D. (2008). Oil Shock and Economic Growth in Japan: A Nonlinear Approach, Energy Economics, Vol. 30, No. 5, pp. 2374-90. DOI: 10.1016/j.eneco.2008.01.006
Akinsola, M. O. & Odhiambo, N. M. (2020). Asymmetric Effect of Oil Price on Economic Growth: Panel Analysis of Low-income Oil-importing Countries, Energy Reports, 6 (1057 – 1066). DOI: 10.1016/j.egyr.2020.04.023
Apergis, N., Aslan, A., Aye, G. C. & Gupta, R. (2015). The asymmetric effect of oil price on growth across US States, Energy Exploration & Exploitation, Vol. 33, No. 4 (2015), pp. 575-590. DOI: 10.1260/0144-5987.33.4.575
Baek, J., & Young, T. B. (2020). A new look at the crude oil prices and economic growth nexus: asymmetric evidence from Alaska, Mineral Economics, 1-6. DOI: 10.1007/s13563-020-00225-4.
Bai, J. & Perron, P. (2003). Computation and analysis of multiple structural change models, Journal of Applied Econometrics, vol. 18, issue 1, 1-22. DOI: 10.1002/jae.659
Balsalobre-Lorente, D., Bekun, F. V., Etokakpan, M. U. & Driha, O. D. (2019). A road to enhancements in natural gas use in Iran: A multivariate modelling approach, Resources Policy, Vol. 64,101485. https://doi.org/10.1016/j.resourpol.2019.101485.
Brown, S.P., & Yücel, M.K. (2002). Energy prices and aggregate economic activity: an interpretative survey. The Quarterly Review of Economics and Finance, 42(2), pp. 193-208. DOI: 10.1016/S1062-9769(02)00138-2
CBN, (2019). Central Bank of Nigeria Annual Statistic, 2019, https://www.cbn.gov.ng/documents/statbulletin.asp
Charfeddine, L., & Barkat, K. (2020). Short-and long-run asymmetric effect of oil prices and oil and gas revenues on the real GDP and economic diversification in oil-dependent economy. Energy Economics, 86, DOI: 10.1016/j.eneco.2020.104680
Cologni, A. & Manera, M. (2009). The asymmetric effects of oil shocks on output growth: A Markov-Switching Analysis for the G-7 Countries, Economic Modelling, Vol. 26, pp. 1-29. DOI: 10.1016/j.econmod.2008.05.006
Corden, W. M. & Neary, J. P. (1982). Booming Sector and De-industrialisation in a Small Open Economy, The Economic Journal, 92 (December): 825–48. DOI :10.2307/2232670.
Cunado J. & de Gracia F. (2005). Oil prices, economic activity and inflation: evidence for some Asian countries, Energy Economics, Vol. 45, pp. 65–83. DOI:10.1016/j.qref.2004.02.003
Du, L., He, Y. & Wei, C. (2010). The relationship between oil price shocks and China’s macroeconomy: An empirical analysis, Energy Policy 38, 4142–4151. DOI: 10.1016/j.enpol.2010.03.042
Gbatu, A.P., Wang, Z., Wesseh, P.K. & Tutdel, I.Y.R. (2017). Asymmetric and Dynamic Effects of Oil Price Shocks and Exchange Rate Fluctuations: Evidence from a Panel of Economic Community of West African States (ECOWAS), International Journal of Energy Economics and Policy, 2017, 7 (3), p.1-13
Gershon, O., Ezenwa, N. E. & Osabohien, R. (2019). Implications of oil price shocks on net oil-importing African countries, Heliyon, Vol. 5, Issue 8, August. DOI: 10.1016/j.heliyon.2019.e02208
Gisser, M. & Goodwin, T.H. (1986). Crude Oil and the Macroeconomy: Tests of Some Popular Notions, Journal of Money, Credit and Banking, Vol. 18, No.1, pp. 95-103. DOI: 10.2307/1992323
Hamilton, J.D. (2003). What is an Oil Shock, Journal of Econometrics, Vol. 113, No.2, pp. 363-396. DOI: 10.1016/S0304-4076(02)00207-5
Huang, B.N., M.J. Hwang, & Peng, H.P. (2005). The Asymmetry of the Impact of Oil Price Shocks on Economic Activities: An Application of the Multivariate Threshold Model, Energy Economics, Vol. 27, pp. 455-476. DOI:10.1016/j.eneco.2005.03.001
Ifeanyi O. N. & Ayenajeh M. E. (2016). Impact of Crude Oil Price Volatility on Economic Growth in Nigeria (1980 2014), Journal of Business and Management. Volume 18, Issue 6 (I ), PP 10-19 www.iosrjournals.org
Igberaese, T. (2013). The effect of oil dependency on Nigeria’s economic growth. An unpublished M.Sc thesis from International Institute of Social Sciences, The Netherlands.
Khalid M. K. (2019). The Dynamic Links between Oil Prices and Economic Growth: Recent Evidence from Nonlinear Cointegration Analysis for the ASEAN-5 Countries, Emerging Markets Finance and Trade, DOI: 10.1080/1540496X.2019.1677463
Lardic, S. & Mignon V. (2008). Oil Prices and Economic Activity: An Asymmetric Cointegration Approach, Energy Economics, 30 (847 – 855). DOI: 10.1016/j.eneco.2006.10.010
Malik, A. (2008). Crude Oil Price, Monetary Policy and Output: The Case of Pakistan, The Pakistan Development Review, 47, (4), 425-436
Nathaniel, S. P. & Bekun, F.V. (2019). Environmental management amidst energy use, urbanization, trade openness, and deforestation: The Nigerian experience. Journal of Public Affairs, Vol. 20(2), e2037. https://doi.org/10.1002/pa.2037
Nathaniel, S. P., Kursat, Y. & Bekun, F.V. (2021). Assessing the environmental sustainability corridor: Linking natural resources, renewable energy, human capital, and ecological footprint in BRICS. Resources Policy, Vol. 70, 101924. https://doi.org/10.1016/j.resourpol.2020.101924
Nzimande, N. & Msomi, S. (2016). Oil Price Shocks and Economic Activity: The Asymmetric Cointegration Approach in South Africa, Journal of Economic and Financial Sciences | JEF| October 2016 9(3), pp. 685-695. DOI: 10.4102/jef.v9i3.65
Ogundipe, O., Ojeaga, P. & Ogundipe, A. (2014). Oil Price and Exchange Rate Volatility in Nigeria, Journal of Economics and Finance (IOSR), Volume 5, Issue 4. (Sep.-Oct. 2014), PP 01-09. DOI: DOI: 10.9790/5933-0540109
Okonkwo, I. V. & Mojekwu, K. O. (2018). Crude Oil Price Fluctuations and Nigeria Economic Growth: 1997-2015, International Journal of Research in Business, Economics and Management, Vol.2 Issue 2, March-April.
Olanipekun, I. O. & Alola, A. A. (2020). Crude oil production in the Persian Gulf amidst geopolitical risk, cost of damage and resources rents: Is there asymmetric inference?, Resources Policy, Vol. 69, https://doi.org/10.1016/j.resourpol.2020.101873
Omojolaibi, J. A. (2013). Does Volatility in Crude Oil Price Precipitate Macroeconomic Performance in Nigeria? International Journal of Energy Economics and Policy, Vol. 3, No. 2, pp.143-152 ISSN: 2146-4553.
Osuji, E. (2015). International Oil Prices and Exchange Rate in Nigeria: A Causality Analysis, International Journal of Academic Research in Economics and Management Sciences, 2015, Vol. 4, No. 3. DOI: 10.6007/IJAREMS/v4-i3/1798
Papapetrou, E. (2009). Oil Price Asymmetric Shocks and Economic Activity: The Case of Greece. Austrian Association for Energy Economics, 489, 1-21
Perron, P. & Zhongjun, Q. (2006). Estimating restricted structural change models, Journal of Econometrics, 2006, vol. 134, issue 2, 373-399. DOI: 10.1016/j.jeconom.2005.06.030
Rumbia, W. A., Muthalib, A. A., Abbas, B., Adam, P., Millia, H., Saidi, L. O., & Azis, M. (2020). Crude Oil Prices, Household Spending and Economic Growth in the ASEAN-4 Region: An Analysis of Nonlinear Panel Autoregressive Distributed Lag. International Journal of Energy Economics and Policy, 10(4), 437-442. DOI: 10.32479/ijeep.9293
Schorderet, Y. (2003). Asymmetric cointegration. Department of Econometrics, University of Geneva, Working paper series no. 2003.01
Shin, Y., B. Yu, & Greenwood-Nimmo, M. (2014). Modelling asymmetric cointegration and dynamic multipliers in an ARDL framework. In Festschrift in honor of Peter Schmidt, ed. W. C. Horrace and R. C. Sickles, 281–314. New York: Springer Science & Business Media. DOI: 10.2139/ssrn.1807745
Zhang, D. (2008). Oil Shock and Economic Growth in Japan: A Nonlinear Approach, Energy Economics, Vol. 30, No. 5, pp. 2374-90. DOI: 10.1016/j.eneco.2008.01.006
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2022-02-07
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Alenoghena, R., & Arhotomhenla Aghughu, A. (2022). Oil Prices and Economic Activity in Nigeria: An Asymmetric Cointegration and Threshold Analysis: Array. Acta Universitatis Danubius. Œconomica, 18(1). Retrieved from https://dj.univ-danubius.ro/index.php/AUDOE/article/view/1538
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