An Empirical Study on Impact of Crude Oil Price and Real Exchange Rate on Economic Growth of Nigeria

Abstract

The study empirically examines the impact of crude oil price and exchange rate on economic growth in Nigeria covering the period of 1970 to 2016. Time-series data source from Central Bank of Nigeria were used and analysed using Vector Error Correction Approach. The results from the unit root tests indicate that all the variables are integrated of order one I(1). Johansen cointegration test suggests the presence of a long-run economic relationship among the variables. The results estimate on VECM revealed GDP to be positively related to crude oil price and exchange rate in both the periods, while interest rate is positively related to GDP in short run and negatively related in the long-run and inflation is negatively related to GDP in both the period. All variables are statistically significant in both the periods except for interest rate and inflation which are statistically insignificant in both periods. The study further reveals a unidirectional causal relationship between COP and GDP. More so, it reveals bidirectional relationship between GDP and exchange rate. The study recommends effective diversification of the economy which will save the country from the imminent menace of over-reliance on petroleum. And there is need for government of Nigeria to develop sound exchange rate management in the country.