Nexus between Oil Price and Exchange Rate In Nigeria

Filed in Current Projects, Economics Project Topic by on August 11, 2022

 – Nexus between Oil Price and Exchange Rate In Nigeria –

ABSTRACT

Nigeria is a mono-product economy, where the main export commodity is crude oil, changes in oil prices has implications for the Nigerian economy and, in particular, exchange rate movements.

The study examined the effects of oil price, external reserves and oil revenue on exchange rate volatility in Nigeria using yearly data from the year 1980 to 2016.

The theoretical background of this study is based on the balance of payments theory and the purchasing power parity theory of exchange rate. Relevant descriptive and econometric analysis was employed.

The econometrics tests used include unit root test or test for stationarity, using the augmented dickey fuller test which is suitable for large sample, Co integration test was conducted to show if there is a long run relationship between variables.

The study made use of multiple regression method; thus exchange rate [EXR] as the dependent variable, oil price in the international market [OPR], oil revenue[ORV] and external reserves [EXRES] and the independent variables.

INTRODUCTION

Crude oil is the largest source of energy in the world today, it powers the global economy and it’s industrialization process, fluctuation in the price of crude oil is expected to have significant impact n both importers and exporters of the product.

Nigeria is an oil producing state, Nigeria is the largest oil producer in Africa and also 6th position in Organization of petroleum exporting countries (OPEC), Nigeria joined the OPEC cartel since 1971, the main responsibility of OPEC is to restrict the quantity of crude oil each country member will supply in the global oil market, the main aim is to protect the global price of crude oil.

Nigeria is a net importer of finished products; Nigeria imports most of the petroleum products used for domestic consumption and other finished products. This signifies that a change in crude oil price in the international market is expected to cause change in the price of import and exchange rate in the economy.

REFERENCES

Adedipe, B. (2004). The Impact of Oil on Nigeria’s Economic Policy formulation. Maximizing Pro-poor Growth: Regenerating the Socio-economic Database, organized by
Overseas Development Institute in collaboration with the Nigerian Economic Summit Group, 16th -17th June 2004 .
Adeniyi, O.A. (2011). Oil price shocks and Exchange rate dynamics in oil exporting countries:
What is the Nigerian experience? Being a paper presented at the Fourth NAEE/IAEE international Conference
Adeniyi, O., Omisakan, O., Yaqub, J. & Oyinlola, A. (2012). Oil price-Exchange rate Nexus in Nigeria: Further Evidence from an oil exporting country.

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