Examination Of The Relationship Between Oil Price Shock And Macroeconomic Variables In Nigeria

Oil is one of the main indicators of economic activity worldwide because of the extreme importance of its supply to various countries of the world in order to meet their energy needs. As Nigeria's economy depends on oil prices, the country remains vulnerable to fluctuations in world oil prices. During periods of rising oil prices caused by macroeconomic and political conditions in the international market, the state usually has a positive trade balance, there is an increase in foreign exchange reserves and the revaluation of the national currency. The purpose of the article is to evaluate the relationship between oil price change and Nigeria's economic growth rate using regression analysis. The source of statistical information was the data provided by the National Bureau of Statistics, the Nigerian National Petroleum Corporation and the Nigerian Energy Commission. By checking the time series for stationarity using the advanced Dickie-Fuller test, a regression equation is constructed where the dependent variable is represented as the price of oil and the independent variables are the key macroeconomic indicators. The econometric model constructed is adequate since the determination coefficient R2 and the adjusted determination coefficient R2 are 97 and 96% respectively. The Darbin-Watson statistic in the model is 1.98, which is about 2, that is, the model is reliable. The article found that fluctuations in oil prices are positively related to investment, economic growth and exchange rates, as well as to inflation. The paper argues that the use of the shock of oil prices should be supported, as it promotes economic growth and is not inflationary. Therefore, the authors believe that the government, which is the main beneficiary of cash, should also implement strategies that counterbalance the propensity for economic downturn. Based on the analysis, a set of priority measures was proposed: enhancing financial liberalization, combating corruption, transparency of government activities, creating an open currency market, and developing non-inflationary monetary and fiscal strategies.